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Fears ease as Yukos keeps pumping

Beleaguered Russian giant Yukos can continue to produce and sell oil despite an earlier demand to stop output, according to Russian officials.

The Justice Ministry said writs barring property sales were not meant to stop Yukos pumping out oil, ending the confusion which pushed up oil prices.

Yukos is facing bankruptcy as courts try to enforce a $3.4bn tax debt.

The company, which pumps a fifth of Russia's crude output, said that operations were continuing as normal.

"The bailiffs' activities are aimed neither at blocking the bank accounts nor the economic activities of Yukos' subsidiaries," the Russian justice ministry spokesman said.

Market stabilises

Oil prices fell on Thursday from record peaks reached on the previous day after it became clear that Yukos could continue production.

US light crude lost 49 cents to $42.41 a barrel early on Thursday after climbing to a peak of $43.05 on Wednesday, the highest in the contract's 21-year history.

In London, Brent crude oil fell 43 cents to $39.10 after scaling a 14-year high of $39.68 the day before.

Yukos accounts for 2% of the world's oil output, pumping out 1.7 million barrels a day.

The stock of Russia's largest oil exporter has plunged to record lows since the country's richest man and Yukos founder Mikhail Khodorkovsky was arrested on fraud charges.

From a level of about $16 a share prior to the arrest in October 2003, the price had plummeted to a three-year low of $2.90 by the time it became apparent that Yukos bailliffs' action could stop it producing oil.

Thursday's relief rally saw Yukos shares soar 20%, as market fears died down.

But investors are still jittery.

"We believe that the row over this bailiffs' demand to the Yukos subsidiaries will prove a sideshow," said market analyst Christopher Granville at UFG.

"The real threat from Yukos' tax debts lies not in the disruption of the company's operations, but in the total destruction of shareholders' equity."

Kremlin pressure

The Russian government sent in the bailiffs after Yukos's failure to pay a $3.4bn (£1.9bn) tax demand.

The company says it does not have the cash on hand to pay the bill in full, but has offered to stagger the payments over several years.

Market commentators have criticised the Russian government for focusing on a company founded by a man who has become a political opponent to President Putin.

Foreign investors are jittery and the actions against Mr Khodorkovsky have drawn into question Russia's commitment to rule of law and protection of shareholder and investor rights.

Earlier this month, President Putin said it was not in his government's interest to see Yukos go bankrupt.

But Yukos's chief executive Steven Theede told reporters that he had been given few signs so far that authorities wanted the oil giant to stay in one piece and out of Kremlin-friendly hands.

Yukos is still pumping, but oil supplies could still be affected within the next three weeks as its bank accounts are frozen, leaving the firm unable to pay pipeline and rail operators to transport its oil.

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