* Concern about U.S. tensions with Iran over nuclear deal
* Surging U.S. output looms over bullish market
* Brent up more than 5 pct in first three months of 2018
* Stronger dollar weighing on crude prices
* Coming Up: API's weekly U.S. oil inventory data at 4:30 p.m ET (Updates prices, adds commentary, changes byline and dateline, previous LONDON)
By Ayenat Mersie
NEW YORK, March 27 (Reuters) - Oil prices were little changed on Tuesday, with Brent futures retreating after hitting $71 a barrel, as the dollar recovered from earlier losses and as the market continues to stagnate after strong gains last week.
The oil market has been supported by concerns about possible disruption to Middle East supply, though strong global output has tempered the bullishness somewhat, particularly with both Brent and U.S. crude benchmarks trading near highs last seen in late February.
Brent crude futures were up 8 cents to $70.22 by 12:40 p.m. EDT (1640 GMT), but down from an earlier high of $71.03 a barrel. West Texas Intermediate (WTI) futures fell 8 cents to $65.48 a barrel, after touching $66.41.
"The dollar index is poking up there, and that's probably weighing a little bit on prices," said Phillip Streible, senior market strategist at RJO Futures in Chicago.
The dollar rebounded from a five-week low hit earlier in the session on improved sentiment as trade tensions eased. A stronger greenback makes dollar-denominated commodities more expensive for holders of other currencies.
Prices for both crude benchmarks have risen by more than 6 percent so far this month and are on track for a third consecutive quarterly gain, which last happened in 2010. An agreement between the Organization of the Petroleum Exporting Countries, Russia and others that started more than a year ago has continued to reduce supply.
The deal is due to expire at the end of 2018, but Saudi Crown Prince Mohammed bin Salman told Reuters that OPEC and Russia were working on an agreement to cooperate for another 10 to 20 years, though that does not specifically mean cuts will continue for that long.
Analysts said the market's current strength may not last. In a note, Barclays Research analysts said they also expected the supply deficit of the past few months to give way to a surplus due to rising U.S. output.
U.S. production has grown by nearly 25 percent in less than two years to above 10 million barrels per day C-OUT-T-EIA.
U.S. crude inventories were forecast to have risen for the fourth time in five weeks, according to analysts polled ahead of inventory reports for last week from industry group American Petroleum Institute (API) later on Tuesday and the U.S. Energy Department's Energy Information Administration (EIA) on Wednesday.
Additional reporting by Amanda Cooper in London and Henning Gloystein in Singapore Editing by Marguerita Choy and Edmund Blair