UPDATE 5-Oil prices fall 1 pct as growing U.S. crude output weighs

* U.S. crude output expected to break through 10 mln bpd -IEA

* IEA may be underestimating global oil demand growth - analyst

* Crude prices in line for biggest weekly drop since October

* Despite the falls, analysts say market is relatively tight

* Coming Up: Baker Hughes U.S. oil rig count at 1 p.m./1800 GMT (Updates prices, adds analyst comment)

Houston, Jan 19 (Reuters) - Oil prices slid 1 percent on Friday and were on track for the biggest weekly falls since October as a bounce-back in U.S. production outweighed ongoing declines in crude inventories.

Brent crude futures were trading 69 cents lower at $68.53 a barrel at 11:22 a.m. EST (1622 GMT). On Monday, they hit their highest since December 2014 at $70.37.

U.S. West Texas Intermediate (WTI) crude futures were trading at $63.21 a barrel, down 74 cents. WTI marked a December-2014 peak of $64.89 a barrel on Tuesday.

Both benchmarks were on track for a weekly loss of nearly 2 percent.

The International Energy Agency (IEA), in its monthly report, said that global oil stocks have tightened substantially, aided by OPEC cuts, demand growth and Venezuelan production hitting near 30-year lows.

But it warned that rapidly increasing production in the United States could threaten market balancing.

"Explosive growth in the U.S. and substantial gains in Canada and Brazil will far outweigh potentially steep declines in Venezuela and Mexico," the IEA said of 2018 production.

The energy watchdog forecast U.S. supply growth will push its output past 10 million barrels per day (bpd), overtaking Saudi Arabia and rivalling Russia.

U.S. crude oil production <C-OUT-T-EIA> rose to 9.75 million bpd last week, according to government data.

Some analysts, however, contend the IEA may be underestimating oil demand growth this year amid strong U.S. shale production trends as global economies show signs of growth to absorb the commodity.

"The demand side of the equation is keeping us well-healed," said Phil Flynn, analyst at Price Futures Group in Chicago, who expects oil demand to hit between 1.8 million bpd to 2 million bpd.

"While its great to be adding shale, its coming at the expense of deepwater projects. Demand is going to continue to surprise on the upside," he added.

Overall, however, oil prices remain well supported, and most analysts do not expect steep declines.

The main price driver has been a production cut by a group of major oil producers around the Organization of the Petroleum Exporting Countries (OPEC) and Russia, who started to withhold output in January last year.

The supply cuts by OPEC and its allies, which are scheduled to last throughout 2018, were aimed at tightening the market to prop up prices.

In the United States, crude inventories fell 6.9 million barrels last week to 412.65 million barrels, the lowest seasonal level in three years and below the five-year average marker around 420 million barrels.

The market is also awaiting Baker Hughes data at 1 p.m. on the U.S. rig count, an early indicator of future output. Last week drillers added 10 oil rigs, the biggest increase since June.

(Additional reporting by Libby George in London, Henning Gloystein in Singapore and Jane Chung in SEOUL; Editing by Marguerita Choy)