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Pain at the Pump...Patents in the Pipeline?

by: David Nickleson, Director of Research

Pain at the Pump.... Patents in the Pipeline?

As crude-oil prices hit multi-year highs this summer most people focused on the immediate impact of higher gas prices at the pump. During one of these fill-ups I thought about a common refrain that innovation flows freely during boom times, but when companies are struggling to make money the first thing to be cut is R&D spending. Wondering if this holds up to actual data; so, I set out to look for a correlation between oil prices and innovation in the oilfield exploration and production tech sectors.

To test this idea, I pulled US crude oil prices and US patent applications classified under the E21B class of the International Patent Classification (IPC) system which serves as a useful approximation for technology related to oilfield drilling and recovery. This data was plotted against time and the results are below with oil price along the right axis and US patent filings along the left axis.

Several items immediately jump out, particularly the 2008 spike in oil prices during the commodity boom. It does not appear as if industry believed this price level was a long-term one however as US patent filings barely deviated from the long term trend.

A second interesting trend is the monthly seasonality in US patent filings which tend to peak in December of each year. Apparently Patent Attorneys and Agents are not immune to the all too human trait of saving things to the last minute.

Most interesting to my thoughts however are the steady climb of patent filings during the years when oil averaged over $90 per barrel, and the steep drop in patent filings when prices collapsed from this level. This indicates that indeed companies cut back on R&D spending during lean times.

With oil prices stabilized and slowly rising again can we expect to see an increase in patent filings and thereby additional opportunities to assist companies with their research needs? Time will tell if oil prices are high enough to generate increased investment and innovation, but at Techson we're ready for the opportunity with our innovative tools and search strategies.