Canada crude -Prices hold near recent multi-month highs

* February WCS trades at $18.55/bbl below WTI

* February synthetic trades at $2.50/bbl above WTI

CALGARY, Alberta, Jan 7 (Reuters) - Canadian cash crude prices held within sight of recent highs on Tuesday, supported by concerns about cold weather affecting production and increasing demand from some U.S. refineries.

Western Canada Select heavy blend for February delivery last traded at $18.55 per barrel below the West Texas Intermediate benchmark, according to Shorcan Energy brokers.

That compares with a settlement price of $18.90 per barrel below WTI on Monday, which was the narrowest differential since late August.

Light (Other OTC: LGSXY - news) synthetic crude from the oil sands last traded at $2.50 per barrel above WTI, compared with a four-month-high settlement price on Monday of $2.80 per barrel above the benchmark.

Market players in Calgary said a number of factors had contributed to the recent rally in Canadian crude prices. Heavy grades have risen steadily since hitting more than $40 per barrel below WTI in early November.

Frigid temperatures around Fort McMurray, the production hub for Canada's vast oil sands, prompted some traders to bet that output will slow, even though temperatures around -40C are not unusual for northern Alberta in January.

"Winter is always a problem to some extent, some years more so than others," one crude trader said.

Persistent market chatter about production issues at Imperial Oil (Toronto: IMO.TO - news) 's Kearl mining project also helped support heavy crude prices, although Imperial Oil spokesman Pius Rolheiser said production rates were in expected ranges, with daily rates exceeding 100,000 bpd.

On the demand side, BP Plc (LSE: BP.L - news) is ramping up Canadian crude processing at its 405,000 bpd Whiting, Indiana, refinery after a revamp last year. The upgrade will increase the refinery's Canadian crude-processing capacity to 350,000 bpd from 85,000 bpd.

Meanwhile, Citgo Petroleum Corp's 174,500 bpd Lemont, Illinois, refinery, which runs on a diet of mainly Canadian crude, is likely to restart its repaired 75,000 bpd vacuum distillation unit in the second half of January, according to sources.

The unit was damaged in a fire on Oct. 23.

Concerns about supply and anticipation of higher demand from Whiting and Lemont helped offset the impact of an explosion at the Co-op refinery in Regina, Saskatchewan, on Dec. 24, which has left the 130,000 bpd plant running at roughly half capacity.