After OPEC's announcement last week that it would not be cutting production, oil prices fell dramatically. Given the significant global oversupply due to the U.S. shale oil boom and decreased demand in China and Europe, this decision marks an historical moment in which OPEC relinquishes its supply-based approach to price manipulation and embraces a market-based approach. Wisely, the organization has shown that it is aware it can no longer dictate oil prices by attempting to control the market.

As the leader of OPEC, Saudi Arabia is the engineer of this new approach. Indeed, at the OPEC summit the kingdom blocked calls from OPEC and non-OPEC producers, such as Russia, Venezuela, Mexico and Iran, who were urging production cuts in the hopes of raising prices in order to stabilize their oil revenues. It is important to understand why Saudi Arabia is so staunchly advocating this new market-based approach.