High water-cut is a key technical problem in the construction of underground gas storage (UGS) in depleted oil reservoir. To enhance the production efficiency of UGS in depleted oil reservoirs, a comprehensive series of simulation studies are conducted to investigate the mechanisms of natural gas dissolution in aqueous phases and gas phase hysteresis using numerical simulation. Henry's law is employed to simulate the dissolution mechanism of natural gas in the aqueous phase, while the Land model is utilized to simulate the hysteresis mechanism of gas phase wetting. Through numerical simulation, the study elucidates the impact of parameters such as Henry's law constant (hens), reservoir pressure, hysteresis degree, and reservoir permeability on the production of UGS with high water-cut. The results show that the hysteresis effect captured 7.94 × 104 m3 of natural gas, accounting for 7.42% of the injected gas volume during 5 cycles of UGS operation. With the increase of hens, the dissolved volume of natural gas decreases, and the cumulative gas production of UGS increases. The relationship between reservoir pressure and gas production in UGS is intricate, exhibiting no clear correlation. The primary cause of the reduction in cumulative gas production attributed to hysteresis is the decline in free gas saturation and the capacity for gas phase flow. The optimal reservoir permeability for constructing UGS in high water-cut reservoirs should not be excessively high; a range of 10–30 mD is deemed suitable. The findings can provide guidance for the construction of UGS in depleted oil reservoirs.