By Scott DiSavino

(Reuters] – The U.S. Volatility Index jumped to a new high on Tuesday, as a result of heightened global prices and an energy crisis in key world markets.

Prices of natural gas in Europe are at an all-time high, with major markets such as China struggling to obtain enough fuel to keep up with demand. This is despite the fact that Asia and Europe have recovered from coronavirus-induced declines faster than expected.

Europe’s prices have risen more than 500% this year, owing to fears that the current storage levels will not be sufficient for winter.

It has also impacted U.S. gas futures. They closed last year at $6.31 per British thermal unit (mmBtu), which is a new 12-year record.

This is still quite a difference from natural gas prices in Europe and Asia which are more than five times cheaper. However, this market is becoming increasingly volatile due to increased U.S. LNG exports.

Implied volatility, which is a measurement of market expected fluctuations, reached an all time high in the United States on Tuesday. It surpassed the record setting of 117.5% in November 2018.

The wild price swings are partly due to merchant commodity traders, hedge funds, and other large investors in the market being exposed to unanticipated price rises. Further increasing volatility is the fact that companies who bet in the wrong direction can find themselves forced to quickly shift their positions in order to make up the losses.

Recent reports have not shown that any hedge fund has failed, however Statar (which invests in natural gas) reportedly lost $130 million. Andurand, the commodities giant has enjoyed huge returns because of rising prices.

(Graphic: Natural gas volatility surges to a record, https://fingfx.thomsonreuters.com/gfx/ce/myvmnodmlpr/Pasted%20image%201633527614184.png)

The competition between Asia and Europe for the limited supply of LNG cargoes has led to decreased activity by European manufacturers and power shortages in China. Record highs have been set for global gas prices, with a record $40 per mmBtu being reached in Europe and $35 across Asia.

Volatility was at its highest point since November 2018. Volumes traded on New York Mercantile Exchange, NYMEX (NYMEX), soared to a record 1.6million contracts.

Volume on NYMEX was around 500,000 contracts Tuesday. This is slightly higher than the last 30 days, but still a small increase from the previous week.

The volumes of the U.S. Natural Gas Fund exchange-traded fund to monitor gas prices exploded by more than 30.2 million shares, its largest daily volume since Nov 2018. Its record breaking 43.1 million shares was set in November 2018.

Analysts don’t expect U.S. gas prices to rise as high in Asia or Europe, because there should be enough gas stored in the United States for winter heating and because U.S. export plants are already producing the most super-cooled gas possible.

Only 10.5 billion cubic yards per day (bcfd), of natural gas can be converted into LNG in the United States. This is about 13% of the country’s total domestic consumption.

Global markets won’t be able to access more US LNG until the sixth liquefaction train of Cheniere Energy (NYSE) Inc’s Sabine Pass or Venture Global LNG’s Calcasieu Pass, Louisiana will start to produce LNG.