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 crudeprices held within sight of recent highs on Tuesday, supportedby concerns about cold weather affecting production andincreasing demand from some U.S. refineries.

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

That compares with a settlement price of $18.90 per barrelbelow WTI on Monday, which was the narrowest differential sincelate August.

Light synthetic crude from the oil sands last traded at$2.50 per barrel above WTI, compared with a four-month-highsettlement price on Monday of $2.80 per barrel above thebenchmark.

Market players in Calgary said a number of factors hadcontributed to the recent rally in Canadian crude prices. Heavygrades have risen steadily since hitting more than $40 perbarrel below WTI in early November.

Frigid temperatures around Fort McMurray, the production hubfor Canada's vast oil sands, prompted some traders to bet thatoutput will slow, even though temperatures around -40C are notunusual for northern Alberta in January.

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

Persistent market chatter about production issues atImperial Oil's Kearl mining project also helped supportheavy crude prices, although Imperial Oil spokesman PiusRolheiser said production rates were in expected ranges, withdaily rates exceeding 100,000 bpd.

On the demand side, BP Plc is ramping up Canadiancrude processing at its 405,000 bpd Whiting, Indiana, refineryafter a revamp last year. The upgrade will increase therefinery's Canadian crude-processing capacity to 350,000 bpdfrom 85,000 bpd.

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

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

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