Heavy crude discount narrows as pipeline talks continue

The Canadian heavy oil discountnarrowed against the West Texas Intermediate (WTI) benchmark onTuesday, as capacity cuts continued to fuel demand for cheaperCanadian crude and various levels of government pledgedfinancial support for a troubled pipeline expansion.

* Western Canada Select (WCS) heavy blend crude for Maydelivery in Hardisty, Alberta, settled at $15.45 a barrel belowthe WTI benchmark crude price , according to ShorcanEnergy brokers, compared with Monday's settle of $16.20.

* The discount has narrowed in recent weeks as producerslike Canadian Natural Resources , faced with atransportation issues and the wide differential, have slowedoutput of heavy crude, analysts and traders said.

* Alberta Premier Rachel Notley said her province could buythe Trans Mountain pipeline if Kinder Morgan Canada walks away from a much-needed expansion of the existing line,buoying hope the embattled project will move ahead.

* An expected return of TransCanada Corp's Keystonepipeline to full pressure, following a November leak, would helpreduce the discount, traders have said.

* Light synthetic crude from the oil sands for May deliverylast traded at $2.25 below WTI, a slightly narrower discountthan Friday's settle of $2.85.

(Reporting by Julie Gordon in Vancouver)