Oil intermarket: S&P and Oil divergence has Fed to blame

Oil has continued to slide with investors running for cover, sending the DXY at 96.51 on the bid and stocks rallying to all time highs in the S&P at 2152, creating an unusual divergence between the black gold and stocks. However, oil was supported to some extent earlier this week on the back of demand forecasts for next year, but stocks at all time highs may be ripe for a pull back bringing the two asset classes back into line. 

However. don't count on market stability in the near future, and with builds in stock-piles of oil and continued risk aversion supporting US dollar denominated assets propping up the DXY could continue to weigh on the price of oil.  The U.S. Department of Energy's Energy Information Administration (EIA) will release official weekly inventory data today in the US session that will follow the API (American Petroleum Institute) crude inventories overnight that rose by 2.2 million barrels in the week to July 8 to 523.1 million, vs expectations for a decrease of 3 million barrels.

Overall, the key factor driving the divergence between the stocks and price of oil comes with markets starting to price out the Fed rate hike that was scheduled for this year, propping up the stock markets while the US dollar remains a safe haven play in the global uncertainties that all combined weigh on the price of oil down to $44.40 earlier in the week.