* WCS for January delivery in Hardisty, Alberta, settled at $18.40 a barrel under WTI, according to CalRock, having settled at $21.50 a barrel under WTI on Tuesday.
* Several market participants said they were surprised by the size of the move, which came a day after Canadian regulators denied a variance request for the Trans Mountain Expansion (TMX) project, increasing the risk the 590,000 barrel-per-day pipeline expansion could be delayed beyond March.
* Linefill on the expanded pipeline is meant to start in the first quarter, which would boost demand.
* One trading source said short-covering by speculators could also be playing a role in the stronger differential.
* Benchmark oil prices fell nearly 4% to their lowest settlements since June, as worries about global fuel demand mounted after U.S. data showed a larger-than-expected rise in gasoline inventories.
* The outright price of WCS held steady at just under $51 a barrel.
(Reporting by Nia Williams in British Columbia; Editing by Chris Reese)