The U.S. Energy Department's latest inventory report showed a higher-than-expected decrease in natural gas supplies. Following this encouraging data, futures ended the week nearly 7% higher.

However, 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 Draws Larger Than Market Expectations

Stockpiles held in underground storage in the lower 48 states fell by a record 190 billion cubic feet (Bcf) for the week ended Dec. 6, above analysts’ guidance of a 165 Bcf depletion. The decrease, fourth in succession, compared with the five-year (2019-2023) average net decline of 71 Bcf and last year’s decline of 72 Bcf for the reported week.

The weekly withdrawal put total natural gas stocks at 3,747 Bcf, 67 Bcf (1.8%) above the 2023 level and 165 Bcf (4.6%) higher than the five-year average.

The total supply of natural gas averaged 110.5 Bcf per day, up 0.6 Bcf per day on a weekly basis, due to higher dry production.

Meanwhile, daily consumption fell to 128.6 Bcf from 136.1 Bcf in the previous week, mainly reflecting lower residential/commercial usage due to higher-than-normal average temperatures.

Natural Gas Prices Finish Higher

Natural gas prices rose last week following a larger-than-expected inventory draw. Prices were also buoyed by higher fuel consumption for power generation and elevated LNG exports. January futures closed at $3.28 on the New York Mercantile Exchange, marking a 6.6% increase. 

However, even with this gain, one has to consider the current natural gas supply surplus and the lingering uncertainty associated with it. With current inventories remaining above both last year’s levels and the five-year average, the rally can be short-lived. 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.

Natural Gas Future Looks Tricky

Despite some positivity, the natural gas market continues to struggle with oversupply, along with unpredictable 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 22.6% 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 $18.7 billion, CTRA has edged down 0.8% in a year.

EQT Corporation: EQT is 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 17.1% in a year.

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