Hedge funds have retreated from bets that oil will continue its sharp rise of the past year, giving hope to hard-hit industry and consumers that prices may have peaked, at least for now.

US government and trading data show hedge-fund managers and speculators have reduced bets on higher oil prices by 80% since last year when prices began to rise sharply.

The figures emerged as part of an official probe by Washington into how much of the oil price surge is due to market speculation. It will also investigate possible manipulation of the market that has seen prices double in the past year.

Its preliminary findings could be released as early as tomorrow. Speculative net long positions fell to 25,867 contracts on the New York Mercantile Exchange last week, from a record 127,491 in July last year.

Crude oil prices were little changed today, with London Brent crude down 11 cents at $127.67 and New York off 26 cents at $127.09. Prices hit a record high above $135 lastweek.

Traders disagree over how much the oil price has been driven by speculation and how much by soaring demand in Asia.

"It's driven by fundamentals," Paul Tossetti, director of oil market analysis at consultants PFC Energy said. "When you look at the number of players, the number of open positions, I don't know how anybody can manipulate anything."