The U.S. Energy Department's weekly inventory release showed a lower-than-expected decrease in natural gas supplies. Despite the bearish inventory numbers, futures were up some 5% week over week, buoyed by weather forecasts, indicating bouts of severe cold snap over most of the country in the coming days.

But even if the mercury does plunge, downward pricing pressure over the past few weeks due to a warmer-than-normal December will still make it difficult for investors to be optimistic about the space. It would be wise to hold on to fundamentally sound gas-weighted producers SilverBow Resources (SBOW Quick QuoteSBOW - Free Report) , Chesapeake Energy (CHK Quick QuoteCHK - Free Report) and Comstock Resources (CRK Quick QuoteCRK - Free Report) .

EIA Reports a Withdrawal Smaller Than Market Expectations

Stockpiles held in underground storage in the lower 48 states fell by 31 billion cubic feet (Bcf) for the week ended Dec 31 compared to the 50 Bcf decline guidance, per the analysts surveyed by S&P Global Platts. The decrease was also below last year’s pull of 127 Bcf for the same corresponding week and the five-year (2016-2020) average net shrinkage of 108 Bcf.

The seventh successive draw of the winter heating season puts total natural gas stocks at 3,195 Bcf, which is 154 Bcf (4.6%) below the 2020 level at this time but 96 Bcf (3.1%) higher than the five-year average.

The total supply of natural gas averaged 99.3 Bcf per day, down 1.5% on a weekly basis due to lower dry production, partly offset by an increase in shipments from Canada.

Meanwhile, daily consumption rose 10.3% to 119 Bcf from 107.9 Bcf in the previous week, primarily reflecting stronger demand from the residential/commercial sector on the back of below-normal temperatures prevailing in the central and western United States. Natural gas consumption in the electric power and industrial sectors grew briskly too.

Natural Gas Still Registers a Weekly Increase

Natural gas prices trended upward last week despite the lower-than-expected inventory withdrawal. Futures for February delivery ended Friday at $3.916 on the New York Mercantile Exchange, rising around 5% from the previous week’s closing. The increase in natural gas realization is primarily the result of a freezing weather outlook (and the subsequent pick-up in heating demand) for the remainder of this month.

Final Thoughts

As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. The latest models anticipate strong temperature-driven consumption over the next few weeks (especially in the Midwest and the Northeast), which is a positive for prices.

Natural gas, also remained supported by a stable demand catalyst in the form of continued strong liquefied natural gas (“LNG”) feedgas deliveries. LNG shipments for export from the United States have been robust for months on the back of environmental reasons and record higher prices of the super-chilled fuel elsewhere. Most analysts believe that deliveries appear poised for further gains through 2022 on surging consumption in Europe and Asia, especially as we head deeper into winter. The circumstances are particularly dire in Europe where gas supply is running low with the need for a steady refill from the United States going into the peak winter period. At the same time, promised flows from Russia have been limited.

But even the recent predictions of frosty temperatures and resilience in LNG exports cannot offset the ill-effects of a mild winter so far. With less-than-normal heating needs in December, withdrawals have been muted. The tepid inventory draws on the back of a warm December has brought back prices under the $4 threshold after recently topping $6 MMBtu for the first time since 2014 and reaching a 13-year high settlement of $6.312 in October.

Investing Strategy

With the natural gas market being unpredictable and spooked by mild weather, investors are quite unsure of what to do. As of now, the lingering uncertainty over the fuel means that investors should preferably wait for a better entry point before buying shares in natural gas-focused companies SilverBow Resources, Range Resources and Comstock Resources.

SilverBow Resources is valued at around $360 million. SBOW went on to hit a 52-week high of $34.83 in October. The company’s shares have rocketed 289.7% in a year.

SilverBow Resources — carrying a Zacks Rank #3 (Hold) — reported EPS of $2.69 in November, reflecting a 30% surprise over consensus. SBOW beat the Zacks Consensus Estimate for earnings in three of the last four quarters but missed once. It has a trailing four-quarter earnings surprise of roughly 1.5%, on average.

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

Chesapeake Energy has a projected earnings growth rate of 5.6% for the current year. CHK went on to touch a 52-week high of $69.69 on Friday.

Chesapeake Energy beat the Zacks Consensus Estimate for earnings in three of the last four quarters. The Zacks Rank #3 stock has a trailing four-quarter earnings surprise of roughly 23.1%, on average. CHK shares have rallied around 68.6% in a year.

Comstock Resources has a projected earnings growth rate of 72.4% for the current year. CRK sports a Zacks Style Score of A for Value, A for Growth and B for Momentum.

Comstock Resources beat the Zacks Consensus Estimate for earnings in three of the last four quarters and met once. The Zacks Rank #3 company has a trailing four-quarter earnings surprise of roughly 42.5%, on average. CRK shares have gained around 72.1% in a year.