UPDATE 8-Oil hits one-mth low as U.S. inventory and output data dents optimism


* U.S. crude inventories rise, refining runs boost product stocks

* U.S. crude production hits record 10.25 million bpd last week

* Climbing U.S. production looms over the market

* The U.S. shale revolution: http://tmsnrt.rs/2EtJgen (Updates with additional details, quotes)

NEW YORK, Feb 7 (Reuters) - Oil prices fell to a one-month low on Wednesday after U.S. data showed a build in inventories and record high crude production, raising worries that the market could be in for more selling, exposing speculators that have bet big on upward momentum in crude.

U.S. West Texas Intermediate (WTI) crude dropped $1.87, or 3 percent, to $61.52 a barrel, as of 1:38 p.m. EST (1838 GMT). WTI hit a low of $61.33, the lowest level since Jan. 5. Volumes were heavy, with more than 806,000 front-month futures trading, compared with an average of 634,000 contracts over the last 200 days.

Brent crude futures fell $1.44, or 2.2 percent, to $65.40 a barrel.

U.S. crude inventories rose 1.9 million barrels last week, according to the U.S. Energy Information Administration. This was less than expected, but that was in part because of a surprising increase in refining activity that boosted fuel inventories headed into the seasonally slow spring.

However, U.S. crude production also rose, hitting 10.25 million barrels per day (bpd), which would represent a record if confirmed by more reliable monthly data, which lags by a couple of months.

"U.S. weekly oil production registering 10.25 million bpd in todays report has unsettled the market the impact of which is manifested as weakening oil prices," said Abhishek Kumar, senior energy analyst at Interfax Global Gas Analytics in London.

The increase in production - presaged by a recent rebound in drilling rig activity - comes after futures prices extended to three-year highs earlier this month, boosting sentiment among drillers.

That rise in output could undercut the market further looking forward, analysts say, especially as official estimates for U.S. production gains were recently increased.

Hedge funds and other speculators had a record position in crude futures as recently as late January, but trimmed those positions since; they are still largely arrayed in favor of more gains for oil.

"Bullish sentiment that was built on OPEC cuts and geopolitical unrest is slowly fading away as recognition of U.S. production surpassing 10 million bpd sinks in, which also puts Saudi Arabia and Russia at risk of losing further market share," wrote analysts at Drillinginfo.com, in commentary after the EIA figures.

The Organization of the Petroleum Exporting Countries and other producers, including Russia, have cut production since January 2017 to force down global inventories.

Rising U.S. oil production <C-OUT-T-EIA> has been looming over the market, with output up by 1 million bpd in the last year.

The EIA expects U.S. output to reach an average of 10.59 million bpd in 2018 and 11.18 million bpd by 2019, accelerating earlier estimates. That should continue to drive U.S. exports, pinching OPEC efforts to reduce supply, and puts the U.S. in line to potentially overtake Russia as the world's largest producer.

The futures market is in backwardation where prompt prices for oil are above those for future delivery, suggesting investors are counting on demand outpacing supply. However, front-month contracts fell more rapidly on Wednesday than further-dated futures, suggesting a slightly less favorable view of supply/demand dynamics than before the EIA data.

(Additional reporting by Scott DiSavino in New York, Amanda Cooper in London, and Henning Gloystein in Singapore; Editing by Susan Thomas and Marguerita Choy)