The U.S. Energy Department's latest inventory report showed a lower-than-expected decrease in natural gas supplies. Despite this bearish data, futures ended the week higher due to expectations of more people using the fuel to heat their homes on account of colder weather.

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, Range Resources RRC and Shell plc SHEL.

Natural Gas Draw Smaller Than Market Expectations

Stockpiles held in underground storage in the lower 48 states fell 2 billion cubic feet (Bcf) for the week ended Nov. 22, below analysts’ guidance of a 3 Bcf depletion. The decrease, second in succession, compared with the five-year (2019-2023) average net decline of 30 Bcf.

The weekly withdrawal put total natural gas stocks at 3,967 Bcf, 134 Bcf (3.5%) above the 2023 level and 267 Bcf (7.2%) higher than the five-year average.

The total supply of natural gas averaged 108.4 Bcf per day, up 0.8 Bcf per day on a weekly basis, due to higher dry production partly offset by lower shipments from Canada.

Meanwhile, daily consumption edged up to 107.9 Bcf from 107.3 Bcf in the previous week, mainly reflecting higher residential/commercial usage.

Natural Gas Prices Still Finish Higher

Natural gas prices rose last week despite a smaller-than-expected inventory draw. Prices were buoyed by strong demand forecasts on the back of colder temperatures.  December futures closed at $3.363 on the New York Mercantile Exchange, marking a 2.3% 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.

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 Cheniere Energy, Range Resources and Shell plc —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 27.8% in a year.

Range Resources: The company is an U.S. independent natural gas producer with operations focused in the Appalachian Basin. Range Resources’ large contiguous acreage position provides more than 30 years of low-breakeven, high-return inventory. The company produced 202.8 Bcfe from these assets in the third quarter of 2024 — 68% natural gas.

Range Resources beat the Zacks Consensus Estimate for earnings in each of the last four quarters. The upstream operator has a trailing four-quarter earnings surprise of roughly 28.8%, on average. RRC shares have gained 10% in a year.

Shell: Shell’s long-term strategy revolves around LNG. This London-based firm bought BG Group for $50 billion in 2016 to become the world’s largest producer and shipper of LNG. With LNG export demand likely to rise significantly in the near-to-medium term, Shell’s position as a major supplier should help it meet the fuel’s growing demand.

SHEL beat the Zacks Consensus Estimate for earnings in each of the last four quarters. This natural gas exporter has a trailing four-quarter earnings surprise of roughly 15.4%, on average. Shell shares have edged down 0.8% in a year.

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