Oil inter-market: Eyes $ 53.50, out of sync with DXY before Fed?

The black gold is gradually getting out of sync with the inverse relationship it shares with the US dollar versus a basket of major currencies, which is gauged by the USD index (DXY).

Over the last hours, oil has embarked upon a minor-recovery after a brief phase of downside consolidation, with the NYMEX crude futures having risen from session lows of $ 52.67 to highs of $ 53.09. At the same the DXY keeps its range-trade intact around 99.60 levels, recording +0.16% gain on the day.

Usually, a stronger US dollar makes the USD-denominated oil more expensive to the buyers in foreign currencies and vice-versa.

The latest fundamental drivers behind oil are to be blamed for the fading correlation seen between oil and dollar in the European session. While a dramatic turnaround in risk conditions, with risk-on back into markets amid rallying European equities, also helps lift the sentiment around oil prices. The CBOE Volatility Index (VIX) futures, fear gauge, drop -1.67% to 11.79, taking a sharp U-turn from 13 levels seen a day before.

Reports of Russia joining the OPEC producers in abiding with the oil output cut deal fueled a bounce in oil prices. Russia cut its oil and gas condensate production by around 100,000 barrels per day (bpd) between December and January, down to 11.11 million bpd, Reuters reported. Further, the Russian news agency, Interfax, reported that Russia cut January oil output by about 74K bpd.

Additional expectations of a minor draw in the US stockpiles to be reported by the EIA later today, also lend support to the recovery attempts in oil. However, it remains to be seen if the prices manage to survive above $ 53.50 barrier, as any hawkish tilt in the FOMC statement could provide extra legs to the USD correction, which could resurrect the inverse relationship between oil and DXY.