The U.S. Energy Department's latest inventory report showed a lower-than-expected increase in natural gas supplies. Despite this bullish data, futures ended the week lower due to worries over the commodity’s immediate consumption.

Natural gas is expected to remain volatile depending on the weather outlook, supply/demand balance etc. In this situation, investors should focus on resilient stocks like Coterra Energy CTRA and Cheniere Energy LNG, while it may be wise to avoid higher-risk options like Comstock Resources CRK.

Natural Gas Build Smaller Than Market Expectations

Stockpiles held in underground storage in the lower 48 states rose 55 billion cubic feet (Bcf) for the week ended Sept. 27, below analysts’ guidance of a 57 Bcf addition. The increase compared with the five-year (2019-2023) average net injection of 98 Bcf and last year’s growth of 87 Bcf for the reported week.

The weekly build put total natural gas stocks at 3,547 Bcf, which is 127 Bcf (3.7%) above the 2023 level and 190 Bcf (5.7%) higher than the five-year average.

The total supply of natural gas averaged 107.4 Bcf per day, up 0.3 Bcf per day on a weekly basis, due to increased dry production that was partly offset by lower shipments from Canada.

Meanwhile, daily consumption fell to 95.9 Bcf from 98.6 Bcf in the previous week, mainly reflecting lower natural gas consumed for power generation.

Natural Gas Prices Still Finish Lower

Natural gas prices dropped last week despite a smaller-than-expected inventory build. Prices were pulled down by weak demand forecasts on the back of mild temperatures. November futures closed at $2.85 on the New York Mercantile Exchange, marking a 1.7% decrease — the first loss in six weeks. 

However, even with the recent outperformance, one has to consider the formidable natural gas supply surplus and the lingering uncertainty associated with it. With current inventories remaining well above both last year’s levels and the five-year average, the rally was cut short. Investors must remember that natural gas prices dipped to a four-month low of $1.88 in late August, underscoring the market's ongoing volatility.

How Should Investors Play Natural Gas Stocks?

The natural gas market continues to struggle with oversupply, along with shifts in weather and production dynamics. As such, investors should remain cautious. Focusing on fundamentally strong stocks like Coterra Energy and Cheniere Energy may offer more stability amid the uncertainty.

Coterra Energy: It is an independent upstream operator primarily engaged in the exploration, development and production of natural gas. Headquartered in Houston, TX, the firm owns some 183,000 net acres in the gas-producing Marcellus Shale of the Appalachian Basin. This #3 Ranked company churned out an average of 2,779.8 million cubic feet daily of the commodity from these assets in the June quarter.

Coterra beat the Zacks Consensus Estimate for earnings in two of the trailing four quarters and missed in the other two, the average being 5.9%. Valued at around $18.4 billion, Zacks Rank #3 (Hold) CTRA has fallen 12.4% in a year.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cheniere Energy: Being the first company to receive regulatory approval to export LNG from its 2.6 billion cubic feet per day Sabine Pass terminal, Cheniere Energy enjoys a distinct competitive advantage.

Cheniere Energy beat the Zacks Consensus Estimate for earnings in two of the last four quarters and missed in the other two. This #3 Ranked natural gas exporter has a trailing four-quarter earnings surprise of roughly 55.9%, on average. LNG shares have moved up 12.7% in a year.

On the other hand, companies like Comstock Resources appear risky in the near term. CRK is a leading independent natural gas producer with operations focused on the Haynesville Shale in North Louisiana and East Texas.

Reflecting the risks around natural gas, the Zacks Consensus Estimate for the Zacks Rank #5 (Strong Sell) company’s EPS has seen downward revisions. Over the past 60 days, analysts have lowered their estimates for both the current quarter and fiscal year by 133% and 106%, respectively.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Comstock Resources, Inc. (CRK) : Free Stock Analysis Report

Cheniere Energy, Inc. (LNG) : Free Stock Analysis Report

Coterra Energy Inc. (CTRA) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research