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Last week, Imperial Oil Ltd.’s Chief Executive Rich Kruger said that crude by rail shipments out of its own Edmonton terminal would ground to near zero this month from an already reduced 90,000 barrels a day in January.

“We absolutely have seen a drop in rail loadings recently,” said David Arno, oil analyst at Genscape. “With the recent strength in Canadian crude differentials due to the production curtailment, it’s tough for many Western Canadian shippers to make crude-by-rail economic.”

The production curtailments have helped Canadian heavy crude recover from record low prices caused by swelling output and too few pipelines, but new problems have emerged. Western Canadian Select’s discount to the U.S. benchmark narrowed to less than US$7 a barrel last month, which isn’t enough to cover some pipeline shipments to the U.S. Gulf Coast, and far too little to cover the cost of rail.

Too Expensive

Last week, the government eased the mandate by 75,000 barrels a day after complaints by some oil producers. Still, heavy crude continues to trade at a discount of less than US$10 a barrel. To make rail economic, it needs to be between US$15 and US$20 a barrel, Imperial Oil’s Kruger said.

Alberta’s government expects the price differential “to settle at a more sustainable level,” spokesman Michael McKinnon said by email. “Our goal is and always has been to match production levels to what can be shipped using existing pipeline and rail capacity, while encouraging a reduction in storage levels,” he said. “While we’re not out of the woods yet, this temporary measure is working.”