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, reducing tensions between two major crude exporters.

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

Crude for January delivery, which expires later in the day, rose 43 cents to $73.79 a barrel by 1417 GMT (9:17 a.m. EST), after settling up 73 cents on Friday. The February contract was at $74.95.

London Brent crude was up 54 cents at $74.29.

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.

Weather and geopolitics are supporting oil even in the face of overwhelming supply and a glut of spare production capacity, PFGBest analyst Phil Flynn said.

WEATHER

Heavy snow and freezing temperatures in the U.S. Northeast and Europe helped push prices 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 U.S. 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 retained.

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.

Japan's crude oil imports rose 0.4 percent in November from a year ago, the first year-on-year gain in 13 months as the country recovers from the global financial crisis. But gains were limited as refiners reduced runs to offset high oil product stocks.

Money managers continued to cut their net long crude oil futures position on the New York Mercantile Exchange in the week through December 15 as crude prices slipped, the Commodity Futures Trading Commission said.

(Additional reporting by Osamu Tsukimori in Tokyo; Editing by Anthony Barker)

OPEC Iraq