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By Collin Eaton

HOUSTON (Reuters) - Heavy Canadian and U.S. medium sour crude differentials strengthened on Friday following a U.S. air strike in Baghdad that killed Iran's military commander Qassem Soleimani and stirred Middle East geopolitical tensions, traders said.

Iran promised harsh revenge following the U.S. attack that killed Soleimani, considered by many to be the second-most powerful figure in Iran after Supreme Leader Ayatollah Ali Khamenei.

Key North American heavy and medium sour crude grades jumped on speculation that potential retaliation by Iran could disrupt flows of similar crudes in the Middle East, traders said. Most of the heavy sour crude imported by the United States comes from Canada, but the nation also brings in significant shipments from Iraq and Saudi Arabia, according to federal data.

Mars Sour crude, the flagship medium sour U.S. Gulf Coast grade, traded $1.55 over U.S. crude futures, up from around $1.20 on Thursday, traders said.

Western Canada Select (WCS) crude at Hardisty, Alberta, for delivery in February traded $22.50 below West Texas Intermediate (WTI) crude on Friday, narrowed from Thursday's $23.50 settlement, according to traders and pricing data provided by Tudor, Pickering, Holt & Co.

Canadian crude shipments by rail to U.S. refiners were expected to rise from already high levels, traders and analysts said, as Canadian crude, even with rail costs factored in, was profitable to sell in the U.S. Gulf, said Matt Murphy, analyst at Tudor Pickering.

WCS Houston for March delivery currently trades at about $4.90 under WTI, and rail transportation to the U.S. runs at about $12 per barrel. WCS at Hardisty, Alberta, for March traded $21.25 under WTI on Friday, traders said.

"It's pretty telling in terms of how much these Gulf Coast refiners want to pay for these barrels," Murphy said.

Canadian crude by rail shipments to the United States hit a record 500,000 barrels per day (bpd) in early December, according to Tudor. Most of those barrels remained in the U.S. Gulf, however.

Only one shipment of 500,000 barrels of Canadian crude loaded for export from the U.S. Gulf Coast last month, according to vessel-tracking firm ClipperData.

"It makes a lot more sense for that crude to stay in the Gulf Coast and crack the heavy molecule into diesel and gasoline instead of exporting to places less well-equipped to handle the crude," said Abudi Zein, chief executive of ClipperData.

(Reporting by Collin Eaton in Houston; Editing by Chris Reese)