Oil held firm above $73 a barrel on Monday after a 1 percent rise in the previous session as Iranian troops partly withdrew from a disputed oil area in Iraq, easing tensions between two major crude exporters.

The more actively traded February contract rose towards $75 a barrel, helped by frigid weather in the US Northeast and Europe, but gains were limited during a holiday-shortened week and ahead of Tuesday's Organization of the Petroleum Exporting Countries (OPEC) gathering.

Crude for January delivery, which expires later in the day, rose 20 cents to $73.56 a barrel by 1130GMT, after settling up 73 cents on Friday. The February contract was at $74.98. London Brent crude was up 72 cents at $74.47.

Iraqi government spokesman Ali al-Dabbagh said on Sunday a group of Iranian troops who had taken over an oil well in a remote region along the Iran-Iraq border last week were no longer in control of the well, which Iraq considers part of its Fakka oil field.

"Although the incident leaves apprehension, it is not interfering with oil production, so it is not a factor to produce an explosive upward momentum," said Ken Hasegawa, a commodity derivatives sales manager at broker Newedge in Tokyo.

Heavy snow and freezing temperatures in the US Northeast and Europe pushed prices slightly higher.

Oil has risen from a 2-1/2-month low of below $70 a barrel a week ago, after government data showed large declines in US crude and distillate inventories due in part to colder weather.

But gains have been capped by a firm dollar, which hovered near its highest in more than three months against the euro on Monday. Strength in the greenback makes dollar-priced commodities more expensive for holders of other currencies.

"We suspect that it will likely continue to strengthen into the year-end and act as an overall drag on prices," MF Global analyst Edward Meir said.

There is little reason to expect a change in output policy from the OPEC meeting that starts in Luanda on Tuesday, with oil ministers saying targets would be left untouched.

Saudi Arabian Oil Minister Ali al-Naimi has already made clear he believes the current price is right. His view was echoed by Algerian Energy and Mines Minister Chakib Khelil and Iraqi Oil Minister Hussain al-Shahristani.-Reuters