The o-ring stops oil from moving to the timing case shell, via the inside of the pulley.

In theory, with lube and under pressure, the o-ring should self seat inside the recess at the rear of the pulley. You should end up with metal to metal contact between the crank and the pulley, with the seal sitting snug in the recess where it does its sealing job. It should not be sandwiched/pinched/mashed between the crank and the rear face of the pulley.

In practice I find the o-ring generally will not will not self seat, even under pressure of doing up the nose bolt. Undoing it all finds the seal distorted, flattened and on the way to being sheared. I've tried other approaches like using the harmonic balance as a simple slide hammer against the pulley, but no success. Maybe the pulley recess could use a bigger chamfer to guide the o-ring to self seat?

I now resort to installing the o-ring inside the pulley recess before putting the pulley onto the crank. The bane of this order of process is working the o-ring over the last key (the first is left off for the exercise). A small portion of the o-ring is worked out of the recess to give the slack necessary to get over the key, then in the tight space left forcing the slack back into the recess - job done.