CALGARY – Canadian heavy oil prices have weakened ahead of an anticipated announcement that Alberta will ease production limits in exchange for shipping more crude by rail. 

Western Canadian Select’s discount for November futures widened 70 cents a barrel to $16.45 Tuesday, the biggest differential since May, according to Net Energy Exchange. 

It comes as Alberta’s government prepares to soon purchase crude-by-rail contracts later this month. As part of the sale, Premier Jason Kenney has said oil producers will probably be allowed to exceed their provincial imposed output caps if they ca ship those extra barrels by train. 

"There is a big motivation to increase rail use," said Tim Pickering, Founder and chief investment officer of Auspice Capital Advisors in Calgary. "It’s underused."

Alberta imposed production limits on the province’s largest producers at the start of the year after prices collapsed amid a supply glut. 

Oil producers, including Suncor Energy Inc. and Cenovus Energy Inc. have suggested that limits could be raised for producers that agree to ship those extra barrels on rail cars. 

Some analysts say the move would reduce inventories. Rory Johnston, a commodity economist at Scotiabank, said in August that the heavy crude discount to the U.S. benchmark would need to widen to about $20 a barrel. 

The curtailment was supposed to be phased out by the end of year but the province extended it until December 2020. The province also raised the volume of production exempted from 10,000 barrels per day to 20,000 barrels per day.  That limit has also been increased gradually from 3.8 million barrels a day in November to 3.81 million barrels a day in December versus 3.56 million barrels a day in January.

With files from BNN Bloomberg