LONDON, June 5 (Reuters) - Oil futures prices have

fallen to the lowest level for four months and calendar spreads

have slumped after OPEC+ ministers signalled their intention to

start increasing production from the fourth quarter of 2024.

Front-month Brent futures closed at $78 per barrel on June

3, the first day of trading following the OPEC+ ministerial

meeting on June 2, up just $2 per barrel compared with the same

time last year.

Front-month Brent futures traded at a premium of $1.50 per

barrel over contracts six months further forward (56th

percentile for all months since 2000) down from an average of

$2.85 (78th percentile) in May and $4.86 (95th percentile) in

April.

Chartbook: Brent calendar spreads

Following a hybrid meeting held in Riyadh and online, OPEC+

announced voluntary output cuts amounting to 2.2 million barrels

per day (b/d) would be extended until the end of September 2024.

But the cuts will then be gradually phased out on a monthly

basis over the final quarter of 2024 and the first three

quarters of 2025.

The planned production increases are subject to the caveat

they can be "paused or reversed subject to market conditions",

ministers said.

But it is nonetheless an enormous increment - equivalent to

roughly 18 months of normal growth in global oil consumption.

Inevitably, prices have fallen.

STRATEGY SHIFT

The scheduled production increases mark a change of strategy

by OPEC+, led by Saudi Arabia, which had previously focused on

depleting excess inventories and driving prices towards $100 per

barrel.

Instead, the group has switched its focus to stabilising, or

even regaining, some of the market share it has lost in the last

two years to rival producers in the United States, Canada,

Brazil and Guyana.

Repeated official and voluntary production cuts by Saudi

Arabia and other OPEC+ members have failed to lift prices,

though they probably averted a more severe decline.

Instead they have thrown a lifeline to higher-cost producers

in the western hemisphere, encouraging them to maintain and even

increase output.

Dwindling OPEC+ market share has simply become too painful

and contentious to sustain; it brings uncomfortable reminders

about Saudi Arabia's role as a swing producer in the early

1980s.

The scheduled increases are intended to signal there is a

limit to how far Saudi Arabia and its closest allies will cut

production on their own to support prices, and they do not

accept cuts are permanent.

To stabilise and recapture market share, OPEC+ needs slower

growth in rivals' output and faster growth in consumption.

Both imply lower prices to enforce a slowdown in drilling,

stimulate fuel use, and make room for more OPEC+ crude.

Extra production also implies inventories will be higher

than previously anticipated, explaining the sudden slump in

spreads.

MAKING MORE ROOM

For OPEC+ to pump more, others must pump less, other things

equal, and that requires lower prices to force a production

slowdown, especially in the price-sensitive and short-cycle U.S.

shale sector.

Pre-announcing increases in OPEC+ production is intended to

forestall further increases in output by the U.S. shale sector,

partly through signalling and partly through lower prices

themselves.

By deferring the first production increases until October,

and making them conditional on future market conditions, OPEC+

ministers have given themselves some flexibility.

Scheduled production increases can be deferred again if oil

consumption growth fails to accelerate, inventories remain

comfortable and prices stay under pressure.

But OPEC+ has signalled an important shift in the direction

of policy. Having repeatedly thrown the shale sector a lifeline

in 2023, OPEC+ is preparing to squeeze it again in 2025.

Related columns:

- OPEC⁺ likely to extend production cuts in June (May 3,

2024)

- Record U.S. oil and gas production keeps prices under

pressure (March 1, 2024)

- Western Hemisphere oil output surges, with a helping hand

from OPEC (February 21, 2024)

John Kemp is a Reuters market analyst. The views expressed

are his own. Follow his commentary on X https://twitter.com/JKempEnergy

(Editing by Mark Potter)