Oil prices touched seven-month lows despite larger-than-expected declines in US crude and gasoline inventories.

Oil has fallen 20 percent this year, set for its biggest slide for the first half of the year since 1997, as a global glut continues to undermine efforts by major producers to reduce output.

The downturn has hemorrhaged the S&P energy index, making it the worst performing sector among the 11 major indexes this year. The index fell more than 14 percent during the period, while the S&P 500 rallied 8.83 percent.

Shares of oil majors Exxon Mobil and Chevron were down about 1 percent, dragging on the S&P 500 and Dow.

"I think there is a bifurcation between short and long term. Clearly, to this point the Goldilocks scenario and earnings have pushed stock prices higher but oil has perhaps tempered some sentiment near-term," said Terry Sandven, chief equity strategist at US Bank Wealth Management in Minneapolis.

"If oil falls below $40, one would see pressure on overall earnings, not just the energy sector."

Investors are also mindful of the impact of inflation on the pace of future interest rate hikes, with a tug-of-war between financial stability and inflation playing out among the Federal Reserve's policymakers.

Dallas and Chicago Fed chiefs Robert Kaplan and Charles Evans expressed concerns regarding weak inflation, which remains stubbornly below the central bank's 2 percent target.

However, Boston Fed head Eric Rosengren said that the era of low interest rates in the United States poses financial stability risks.

At 12:37 p.m. ET (1637 GMT), the Dow Jones Industrial Average was down 37.39 points, or 0.17 percent, at 21,429.75, the S&P 500 was down 1.1 point, or 0.05 percent, at 2,435.93.

The Nasdaq Composite index was up 34.95 points, or 0.56 percent, at 6,222.98.

Biotechs were among the biggest gainers on the index with Celgene, Regeneron and Amgen trading up between 2 percent and 5 percent.

Eight of the 11 major S&P sectors were lower, with the energy index's 1.64 percent fall leading the decliners.

The financial sector fell 0.56 percent as US Treasury yield curve held near 10-year lows. Goldman Sachs was off 0.8 percent and Bank of America fell 1.3 percent.

Caterpillar's 2.7 percent fall weighed on industrials, which fell 0.48 percent.

FedEx shares hit record high at $213.75 after the package delivery company forecast higher earnings for fiscal 2018.

Declining issues outnumbered advancers on the NYSE by 1,638 to 1,171. On the Nasdaq, 1,458 issues rose and 1,297 fell.