By Shariq Khan

NEW YORK, July 7 (Reuters) - Global oil output and trade flows should rebound fully by the end of this year from the disruptions caused by the Iran war, the U.S. Energy Information Administration said on Tuesday.

Global benchmark Brent crude oil prices will average around $74 a barrel in the spot market during the third quarter of this year, down from an average of $85 in June, the EIA said. The agency had last month forecast Brent prices would average over $101 a barrel in the third quarter.

The months-long blockade of the Strait of Hormuz in the war has shut in millions of barrels of daily oil production from across the Middle East, forcing refiners from Europe to Asia to reduce fuel output.

Vessel movement through the waterway has risen in recent days following a preliminary deal between the U.S. and Iran. Although passage through Hormuz is not yet totally safe, the EIA has raised its annual oil production expectations while lowering its oil and motor fuel price forecasts.

The EIA said it expects most of the oil output previously shut-in across the Middle East to return online by the first quarter of 2027. That will lift global supply and reduce withdrawals from stockpiles, which should help keep prices under control in the months ahead, the agency said.

Lower crude oil prices will contribute to a drop in U.S. retail gasoline prices, the EIA said. The agency now expects U.S. motor fuel prices will average about $3.80 a gallon in the third quarter, down from $4.21 a gallon in the second quarter.

Knock-on effects of the Iran war had pushed U.S. motor fuel prices to multi-year highs, posing a major political worry for President Donald Trump and his Republican Party ahead of November's midterms.