What's Fueling Natural Gas Right Now? 3 Stocks to Follow

The U.S. EIA reported a larger-than-expected 55 Bcf natural gas storage build for the week ending June 27, pushing total inventories to 2,953 Bcf and causing August futures to drop 2.26% to $3.44/MMBtu on supply concerns. This comes despite robust demand, with total gas use expected to exceed 106 Bcf/day driven by hotter weather and recovering LNG exports, which are now averaging 15.4 Bcf/day. While current storage levels are 6.2% above the five-year average, intensifying seasonal demand and increasing LNG exports could quickly tighten the supply cushion, suggesting a potentially stronger price environment ahead and creating investment opportunities in firms like Expand Energy (EXE), Coterra Energy (CTRA), and Antero Resources (AR).

Analysis

The natural gas market is experiencing a significant tug-of-war between bearish short-term supply data and a bullish forward-looking demand outlook. The latest EIA report of a larger-than-expected 55 Bcf storage injection, pushing total inventories to 2,953 Bcf and 6.2% above the five-year average, triggered a 2.26% drop in August futures to $3.44/MMBtu. This 11-week trend of strong builds, aided by a temporary dip in gas-fired power generation, underscores a current supply surplus. However, this is counterbalanced by strengthening demand fundamentals. Total gas consumption is forecast to reach 106 Bcf per day, driven by impending heatwaves set to boost cooling demand and a recovery in LNG export flows to 15.4 Bcf per day. While inventories are above the five-year average, they remain nearly 6% below last year's levels, suggesting the supply cushion could erode quickly if demand intensifies as projected. This environment creates potential for significant price volatility. Specific producers like Antero Resources and Expand Energy are positioned with substantial projected 2025 EPS growth of 1,457.1% and 461.7% respectively, indicating high operating leverage to a potential price recovery in the latter half of the year.

Key Decisions for Investors

• Investors should closely monitor upcoming weather forecasts and weekly EIA storage reports, as a sustained period of high heat and smaller-than-expected inventory builds would be the primary catalyst for a definitive shift in market sentiment and price.
• Consider exposure to natural gas producers with significant forward earnings leverage, such as Antero Resources (AR) and Expand Energy (EXE), which are forecast to see substantial year-over-year EPS growth in 2025 and would benefit disproportionately from a tighter supply-demand balance.
• Acknowledge the near-term price risk demonstrated by the futures drop following the storage report; it may be prudent to await confirmation of demand strength before building aggressive long positions, as the current supply overhang could persist if hot weather fails to materialize.
• For those seeking a more balanced risk profile, Coterra Energy (CTRA) presents an alternative with a favorable long-term EPS growth rate of 29.1%, which outpaces the industry average, and a history of positive earnings surprises.