Updates prices, adds details from EIA outlook, adds latest poll in paragraph 11

By Shariq Khan and Ahmad Ghaddar

NEW YORK/LONDON, May 12 (Reuters) - Oil prices rose more than 3% on Tuesday as stark differences between the U.S. and Iran over a proposal to end the war in the Middle East raised concerns that supply disruptions upending the global oil market are likely to be prolonged.

Brent crude futures LCOc1 gained $3.58, or 3.44%, to $107.79 a barrel by 12:42 p.m. ET (1642 GMT), and U.S. West Texas Intermediate futures CLc1 were up $3.89, or 3.97%, at $101.96. Both benchmarks climbed nearly 3% on Monday.

U.S. President Donald Trump said on Monday that ceasefire talks with Iran were on "life support," pointing to disagreements over Tehran's demands of a cessation of hostilities on all fronts, the removal of a U.S. naval blockade, the resumption of Iranian oil sales and compensation for war damage.

Iran also emphasised its sovereignty over the Strait of Hormuz, through which about a fifth of global oil and liquefied natural gas normally flows.

EIA: STRAIT MAY BE CLOSED TO LATE MAY

The U.S. Energy Information Administration on Tuesday said it assumes the strait will be effectively closed through late May. Even after flows resume, it will take at least until late 2026 or early 2027 for oil output and trade patterns to return to pre-conflict levels, the EIA said.

Disruptions linked to the near-closure of the strait have prompted producers to curtail exports, with a Reuters survey on Monday showing OPEC oil output in April fell to its lowest level in more than two decades.

The EIA estimates 10.5 million barrels per day of output were shut in during April across the Middle East due to the strait closure, limiting exports. Shut-ins will peak at around 10.8 million bpd in May as maxed-out storage tanks pressure producers to cut output further, the EIA said.

Saudi Aramco 2222.SE CEO Amin Nasser warned on Monday that disruptions to oil exports through the strait could delay a return to market stability until 2027, with the loss of about 100 million barrels of oil per week.

Some independent Chinese refiners are curtailing fuel output on weakening profit margins as they battle weak domestic demand and excess product, trade and refining sources said.

U.S. crude stocks were estimated to have dropped by about 2.1 million barrels last week, an extended Reuters poll of analysts showed. U.S. fuel inventories are also expected to have declined last week, the poll showed. EIA/S

Walt Chancellor, energy strategist at Macquarie Group, said strong waterborne export flows of crude and products are likely for the next several weeks.

Market participants were also keeping a close eye on Trump's planned meeting with Chinese President Xi Jinping on Thursday and Friday after Washington imposed sanctions on three individuals and nine companies for facilitating Iranian oil shipments to China.

Tariffs imposed during the U.S.-China trade war have halted most Chinese imports of U.S. oil and LNG, which were worth $8.4 billion in 2024, the year before Trump began his second term.