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Crude Oil Tricks?

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CBS
It's legal, but is it right?

The Oregonian says court records and reports by experts show that BP Amoco created a tighter-than-necessary supply of oil on the West Coast in the U.S., and therefore, higher prices there, by exporting a lot of Alaskan crude to Asia.

The newspaper contends the Alaskan crude BP exported to Asia was sold for less than it could have been sold it to U.S. refiners.

CBS News Correspondent Michael O'Looney reports BP Amoco denies any wrongdoing and says its sales to Asia were "lawful and normal competitive activity."

"What we did in terms of sales to the Far East was well within the bounds of the law," said Jennifer Ruys, a BP spokeswoman in New York. She said the company has since halted its shipments to the Far East because it needs the crude for newly acquired refineries.

In an interview with CBS News, Democratic Senator Ron Wyden of Oregon, a member of the Senate Energy Committee, takes a dim view of the oil company's actions.

"BP Amoco stuck it to the people in Oregon and all along the West Coast, in order to perpetuate their profits," says Wyden. "They knew that our market was very tight and very large and if they stuck it to the West Coast, they could more than make up with higher West Coast prices for any revenue they lost to Asia."

Gas prices on the West Coast are among the highest in the nation, with Oregon motorists averaging $1.61 for regular unleaded - about 20 cents above the national average.

The documents, which the Oregonian filed suit to obtain, were part of a Federal Trade Commission analysis of BP's proposed $26.8 billion buyout last year of Atlantic Richfield Co.

In a 1995 e-mail exchange described by the newspaper, BP managers Robert Aicher and Linda Adamany discussed "shorting the West Coast market" to achieve "West Coast price uplift scenarios."

The e-mail describes shipping ANS to FE - Alaska North Slope crude to the Far East - to "leverage up" prices on the West Coast.

"When they say 'leverage up,' what does that mean?" said economist R. Preston McAfee, one of two experts hired by the FTC. "It means, 'We're going to jack up the West Coast price by taking some of our production and selling it at a lower price elsewhere."

McAfee and veteran engineer Steanson B. Parks, president of a consulting firm in Dallas, both concluded for the FTC that BP had tightened oil supplies to raise the price of millions of barrels of crude oil shipped to refineries in California and Washington state since 1996.

The records were kept under seal in U.S. District Court in San Francisco after the FTC and the states of California, Oregon and Washington sued to block the merger last year.

Regulators alleged the merger would eliminate Atlantic Richfield as one of BP's chief competitors in the exploration and production of Alaska crude oil; together they would own 72 percent of the 800-mile Tran-Alaska Pipeline.

The suit was dropped after BP agreed to sell off Atlantic Richfield's Alaskan holdings to Phillips Petroleum for $7 billion, and the majority of the five-member trade commission approved the merger in April.

BP officials dispute the FTC experts' conclusions, deny the company engaged in anti-competitive pricing and say the commission's approval of the merger speaks for itself.

It's not clear how much BP's pricing strategy might have cost West Coast motorists. McAfee said he is bound by a court order that forbids the disclosure of confidential information and could not reveal his calculation of how much BP raised prices to the West Coast, which consumes 2.6 million barrels of crude a day.

It was "more like 50 cents" a barrel than several dollars, he said, when crude prices ranged from about $12 a barrel to more than $30. That translates to 1 to 3 cents a gallon at the gas pump, McAfee said.

Sen. Ron Wyden, D-Ore., a member of the Senate Energy Committee and an opponent of the merger, said the newly disclosed records provide further evidence that Northwest motorists are getting a rough ride at the pump.

Oil companies have blamed the Northwest's higher prices on OPEC cutbacks, refinery fires, taxes and pipeline disruptions.

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