The amount of oil in storage in Alberta rose in February, monthly data shows, despite moves by the government of Canada's largest crude-producing province to reduce inventories by imposing curtailments on production.

The reason is a sharp decline in crude by rail shipments, analysts say. A significantly narrower discount on Canadian crude compared with U.S. barrels as a result of the curtailments has made rail shipments uneconomic.

Alberta had 72 million barrels (MMbbl) of oil in inventories at the end of February, according to data from the Alberta Energy Regulator, an increase of 3.9 MMbbl from the end of January. That means during the first two months of the year storage inventories only dropped by 2.3 MMbbl.

"The balancing act for the government is a very steep task because they have to manage all these variables," said Mike Walls, senior crude oil analyst with Genscape. "The government did not expect rail would drop off as steeply as it did and that's had a dampening effect" on inventory draws.

The AER reports all the crude stored in infrastructure in Alberta, including pipelines and refineries, as well as the main tank farms, which means its inventory totals are often much higher than that of other information providers like Genscape.

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Alberta is in the midst of a general election campaign, and Cheryl Oates, spokeswoman for the ruling New Democratic Party's campaign, said the government used data from a third-party energy data firm to track crude storage levels.

"That data shows that storage is down since the curtailment policy took effect in January and has been more or less stable since February," Oates said. "We are watching storage data closely to ensure it remains below capacity."

The province last year imposed mandatory production cuts, effective Jan. 1, 2019, after the congestion on export pipelines pushed the discount on Canadian heavy crude versus U.S. barrels to record levels. Premier Rachel Notley said at the time the province had 16 MMbbl too many in storage.

Canadian crude by rail volumes hit a record high of 354,000 barrels per day (bbl/d) in December, according to Canadian regulator the National Energy Board, before declining.

Canadian producer Imperial Oil blasted the government for making rail uneconomic and cut shipments from nearly 170,000 bbl/d to near zero in February. Imperial said last week it has restarted shipping a small amount.

Genscape's Walls said that from a price perspective curtailments are working, but fundamental data suggested the discount on Canadian barrels should be wider.

Canadian heavy crude was last trading around $8.2/bbl below West Texas Intermediate benchmark crude, according to Net Energy Exchange. Traders in Calgary say a price differential of around $15/bbl between Canadian and U.S. barrels is needed to make rail economic.

"At around $10 a barrel off WTI for April delivery and around $9 a barrel off WTI for May delivery, pricing incentives generally aren't on board to draw barrels from storage on rail," they wrote," analysts at TPH Energy Research said in a recent note.