My 6 year old (who would be in kindergarten just based on age, but would probably fit better in a first grade class) can read that, but he's a very good reader for his age. At this point in her first grade year my DD would have had trouble with it (but she may have a learning disability.) Here is a link to the DIBELS benchmarks goals. As you can see, a first grader at this point in the year is only expected to be able to read 20 words of a sample like that in one minute. The way it's administered, the child has 3 seconds to read each word and if she can't get it in that time, the test giver tells her the word and she continues on until a minute has passed. The number of words that were read correctly in that minute are counted. So a first grader wouldn't need to be able to read the whole thing to "pass" the assessment; she would just need to read 20 words successfully in a minute, and those 20 words could be mixed in with ones she couldn't read and had to get help with.
That sounds like a very stressful test to put a 7yo through.