Latest figures from US government agencies and trading data have indicated that hedge fund managers and speculators have reduced bets on higher oil prices by 80 per cent since July last year, when prices began to rise sharply and crude futures rose to record highs.

Speculative net long positions fell to 25,867 contracts on the New York Mercantile Exchange in the week ending May 27, from a record 127,491 on July 31, according to a Commodity Futures Trading Commission report released on May 30.

The figures emerged as part of an official probe into how much of the oil price surge is due to market speculation. The Senate Committee on Homeland Security and Governmental Affairs, which is scrutinising the role of financial speculators in the commodities markets, has heard testimony from hedge fund managers on how speculative investment by institutional investors and hedge funds in commodity indices may be contributing to food and energy price inflation.

But the latest revelations may now complicate this probe, along with a similar investigation by the CFTC, as the authorities try to determine how much of the rise in oil to more than USD135 a barrel last month was caused by speculators or by market manipulation.

This is both good and bad news. The good news is that the figures suggest that oil prices may have peaked. But the bad news is that the authorities, who lacked a convincing explanation of the oil price spike and were trying to make a scapegoat of hedge funds and other speculative investors, still haven't found an explanation - and that is disturbing.