The U.S. Energy Department's latest inventory report showed a lower-than-expected decrease in natural gas supplies. Following this disappointing data, futures ended the week more than 8% lower.

Natural gas is expected to remain volatile, depending on the temperature outlook, supply/demand balance etc. In such a situation, investors should focus on resilient stocks like Cheniere Energy LNG, Coterra Energy CTRA and EQT Corporation EQT.

Natural Gas Draw Smaller Than Market Expectations

Stockpiles held in underground storage in the lower 48 states fell 30 billion cubic feet (Bcf) for the week ended Nov. 29, below analysts’ guidance of a 48 Bcf depletion. The decrease, third in succession, compared with the five-year (2019-2023) average net decline of 47 Bcf and last year’s decline of 81 Bcf for the reported week.

The weekly withdrawal put total natural gas stocks at 3,937 Bcf, 185 Bcf (4.9%) above the 2023 level and 284 Bcf (7.8%) higher than the five-year average.

The total supply of natural gas averaged 109.7 Bcf per day, up 0.2 Bcf per day on a weekly basis, due to higher shipments from Canada partly offset by lower dry production.

Meanwhile, daily consumption jumped to 135.9 Bcf from 117.4 Bcf in the previous week, mainly reflecting higher residential/commercial usage on the back of lower temperatures.

Natural Gas Prices Finish Lower

Natural gas prices fell last week following a smaller-than-expected inventory draw. Prices were buoyed by relatively weaker demand forecasts on the back of warmer-than-normal temperatures. January futures closed at $3.076 on the New York Mercantile Exchange, marking an 8.5% decrease. 

In the current price context, one has to consider the existing natural gas supply surplus and the lingering uncertainty associated with it. With inventories remaining above both last year’s levels and the five-year average, the trend remains bearish. 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.

The Road Ahead for Natural Gas

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 Cheniere Energy, Coterra Energy and EQT Corporation — each carrying a Zacks Rank #3 (Hold) — may offer more stability amid the uncertainty.

You can see the complete list of today’s Zacks #1 Rank 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 three of the last four quarters and missed in the other. The natural gas exporter has a trailing four-quarter earnings surprise of roughly 87.5%, on average. LNG shares have moved up 28.3% in a year.

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. The company’s share of natural gas in its overall production is around 65%.

Coterra’s expected earnings per share growth rate for three to five years is currently 10.1%, which compares favorably with the industry's growth rate of 8.3%. Valued at around $18.4 billion, CTRA has edged up 0.3% in a year.

EQT Corporation: EQT holds the position of being the largest natural gas producer in the domestic market based on average daily sales volumes. With a primary emphasis on the Appalachian Basin, spanning Ohio, Pennsylvania and West Virginia, the company’s share of natural gas in its overall production/sales is more than 90%.

EQT beat the Zacks Consensus Estimate for earnings in each of the last four quarters. The natural gas producer has a trailing four-quarter earnings surprise of roughly 56%, on average. EQT shares have moved up 17.5% in a year.

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