Has Natural Gas Sell-Off Improved Risk Reward for Buyers?

Natural gas futures have experienced another bout of volatility, with prices pulling back sharply after an early December surge driven by cold-weather fears. The recent sell-off has reignited a debate over whether the market has corrected enough to better reflect underlying fundamentals. For investors and traders, the key question now is whether current levels present a more balanced entry point.

The retreat underscores how sensitive natural gas prices remain to shifting weather forecasts. Yet beneath the surface, storage dynamics and export demand continue to provide crucial support, even as near-term sentiment cools. At this time, we advise investors to focus on stocks such as Expand Energy EXE, Cheniere Energy LNG and Excelerate Energy EE.

Milder Forecasts Hit Gas Price Rally

Natural gas futures fell roughly 20% from a three-year high reached just over a week ago, reversing a rally that briefly pushed prices above $5 per million British thermal units. The decline followed a rapid shift in winter weather forecasts, which turned milder after an unusually cold start to December.

Prices slid into the low $4 range as traders recalibrated expectations for late-December heating demand. When weather forecasts predicted normal temperatures instead of extreme cold, worries about running out of natural gas quickly disappeared. This caused traders who were betting on prices rising (speculative long positions) to rapidly sell off their contracts.

This sudden drop in price shows just how quickly market confidence can change in a commodity heavily influenced by short-term weather predictions, particularly during the peak winter demand season.

Why Prices May Be Finding a Near-Term Floor

Despite the speed of the sell-off, trader commentary suggests prices in the low $4s may better align with current fundamentals. After the correction, some market participants argue that the earlier move above $5 was unsustainable without a persistent, severe cold.

At the same time, there is reluctance to push prices materially lower with January approaching, given the ongoing risk of renewed cold snaps. Even modest shifts back toward colder forecasts could quickly revive buying interest, limiting downside from the current levels.

As a result, natural gas prices seem to be settling down because traders are weighing the end of the extreme cold against the possibility that severe winter weather could still return.

Inventory Trends Still Tightening Beneath the Surface

While prices have retreated, storage data points to a tightening backdrop that has not fully disappeared. The Energy Information Administration recently reported a large weekly withdrawal of 177 billion cubic feet (Bcf), marking the first major draw of the season.

That withdrawal narrowed the surplus versus the five-year average to 103 Bcf, down sharply from 191 Bcf the prior week. Early December cold has already begun eroding excess inventories, and projections suggest that stocks could slip into a deficit relative to the five-year average before month-end.

Although warmer forecasts for the second half of December may limit subsequent draws, the recent storage data reinforce that the supply cushion is shrinking faster than it was just weeks ago.

Export Demand Continues to Underpin the Market

Beyond weather-driven demand, export flows remain a structural pillar for natural gas prices. U.S. liquefied natural gas (LNG) feedgas demand is running at record levels, reflecting strong international consumption from Europe and Asia.

Even when domestic heating demand eases, LNG exports continue to absorb a growing share of U.S. supply. This dynamic has become an increasingly important source of support, helping to keep prices elevated relative to historical norms despite bouts of volatility.

The persistence of strong export demand helps explain why prices, even after a steep pullback, remain well above levels seen earlier in the year.

Balancing Short-Term Caution With Longer-Term Resilience

For investors assessing exposure, the current setup requires balancing near-term weather risks against supportive supply-and-demand fundamentals. Milder forecasts may cap upside in the immediate term, but tightening inventories and robust LNG demand reduce the likelihood of a sustained collapse.

This environment may favor a more selective approach within the oil/energy space, with a preference for operators that can withstand commodity price swings. Ultimately, natural gas futures appear to be transitioning from a weather-fueled correction toward a more fundamentals-driven phase. While volatility is unlikely to disappear, the recent sell-off may have reset prices to levels that better reflect the market’s underlying resilience.

3 Stocks to Focus on

Expand Energy: Expand Energy has solidified itself as the largest natural gas producer in the United States, following the Chesapeake-Southwestern merger. With key assets in the Haynesville and Marcellus basins, Zacks Rank #3 (Hold) EXE is well-positioned to capitalize on the increasing demand for natural gas, driven by LNG exports, AI/data centers, EV expansion, and broader electrification trends.

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

The Zacks Consensus Estimate for Expand Energy’s 2025 earnings per share indicates a 317.7% year-over-year surge. The firm has a trailing four-quarter earnings surprise of roughly 4.9%, on average.

Cheniere Energy: Cheniere Energy holds a clear competitive edge as the first company to receive regulatory approval to export LNG from its 2.6 billion cubic feet per day Sabine Pass terminal. Strong operations and long-term contracts position the company for substantial growth in both revenues and earnings.

Backed by firm gas supply agreements for its Sabine Pass and Corpus Christi facilities, the Zacks Rank #3 company enjoys strong cash flow visibility and solid long-term growth prospects. Notably, over the past 60 days, the Zacks Consensus Estimate for Cheniere Energy’s 2025 earnings has moved up 20%.

Excelerate Energy: Headquartered in The Woodlands, TX, the company focuses on LNG infrastructure and services, particularly Floating Storage Regasification Units (FSRUs) and associated terminals. Operating across both emerging and developed markets, Excelerate Energy accounts for about 20% of the global FSRU fleet and 5% of total regasification capacity. Established in 2003, the company is now expanding into LNG-to-power and gas distribution, offering reliable and flexible energy solutions worldwide.

The Zacks Consensus Estimate for Excelerate Energy’s 2025 earnings per share indicates 2.4% year-over-year growth. This #3 Ranked firm has a trailing four-quarter earnings surprise of roughly 26.7%, on average.

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This article originally published on Zacks Investment Research (zacks.com).

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