Thursday June 29, 2006
The US authorities have accused the British oil giant of buying up large amounts of propane in February 2004. The move pushed up prices by more than 40% to about 90 cents a gallon and netted BP £20m in profits.
According to the Commodity Futures Trading Commission (CFTC), BP traders - with the consent of senior management - bought "enormous quantities of propane" to establish a "dominant and controlling" position in the market and then held back supplies from the market in order to boost prices.
Propane is used by around 7m households in the US to heat trailer and rural homes and fuel cookers. It is also heavily used by industry.
BP denied any wrongdoing, but one former BP trader, 34-year-old Dennis Abbott, of Houston, yesterday pleaded guilty in a federal district court in Washington to taking part in a conspiracy "to manipulate and corner the propane market".
Abbott, who has agreed to cooperate in a continuing criminal investigation being conducted by the FBI, faces up to five years in prison and a fine of $250,000 (£138,000).
BP said "market manipulation did not occur" and that the company intended to fight the charges in court. However, it said an internal investigation conducted by BP found that several employees had "failed to adhere to BP policies governing trading activities" and had been dismissed.
"Cornering a commodity market is more than a threat to market integrity," said Gregory Mocek, the CFTC's director of enforcement. "It is an illegal activity that could have repercussions for commercial market participants as well as retail consumers around this country."
The CFTC alleges that February 2004 was not the first time that BP had engaged in an effort to corner the propane market. It said BP attempted to manipulate the price of propane in April 2003 through a similar strategy.
The CFTC lawsuit alleges that a BP employee described the April 2003 incident as a "trial run" for the February 2004 strategy.
This is the second blow to BP's reputation in the US this month. In early June, the company admitted it was facing a criminal inquiry into a massive oil spill in Alaska, described by environmentalists as a "catastrophe".
BP, which has sought to project an image of environmental responsibility, received a subpoena on April 26 from a federal grand jury in Alaska. But it only revealed the investigation, which could lead to prison sentences, after an internal email was leaked to journalists.
Revelations about the investigation into the spill of 1.2m litres of crude into the Prudhoe Bay area in March followed a fire and 15 deaths at its Texas City refinery and a rig capsizing in the Gulf of Mexico.
The latest legal setback had little effect on BP's shares, which were virtually unchanged in morning trading at 615.62p.