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UPDATE 1-Two-thirds of E.Coast refiners shutting as Sandy nears

* Top E.Coast refinery 330,000 bpd, shutting-source

* Hess confirms Port Reading closure; PBF Paulsboro too

* Gasoline, heating oil futures rise

NEW YORK, Oct 29 (Reuters) - More than two-thirds of the East Coast's refining capacity shut down on Monday ahead of Hurricane Sandy sending gasoline futures up more than 4 percent as operators braced for potentially damaging power outages and flooding. With Sandy gaining strength overnight as the vast storm turned westward toward New Jersey, Philadelphia Energy Solutions began the precautionary closure of key units at its 330,000 barrel-per-day (bpd) Philadelphia refinery, the biggest in the region, said one source familiar with operations. The reformer unit at the Point Breeze section is already shut. Two other plants also moved toward a full shut-down: Hess Corp said it was closing its 70,000-bpd refinery in Port Reading, New Jersey; and PBF Energy's 180,000-bpd Paulsboro plant in southern New Jersey, across the Delaware River from the Philadelphia area, was also shutting, a source said. Together with the 238,000 barrels-per-day (bpd) Bayway, New Jersey, refinery, which operator Phillips 66 began shutting on Sunday evening, nearly 70 percent of the region's capacity was on track to be idled. At least one other plant was running at reduced rates, a source said on Sunday. Oil traders were already factoring in a potential squeeze on fuel supplies. ``While Hurricane Sandy will be accompanied by a short term negative transport demand shock, we think the market will still focus on lost product supply,'' said BNP Paribas oil analysts Harry Tchilinguirian and Gareth Lewis-Davies in a research note. ``Given the recent tightness of supplies in New York Harbor, this weather event is only likely to perpetuate strength in gasoline prices... Lost distillate output in turn will act to depress inventories further.'' Benchmark gasoline futures rose almost 4 percent to $2.80 a gallon and heating oil rose 1.2 percent to $3.14 a gallon in thin trading on the New York Mercantile Exchange's (NYMEX) electronic system. The NYMEX's open-outcry trading floor was shut due to mandatory evacuations of low lying areas around Manhattan's southern tip. Brent futures for December delivery were up 32 cents or 0.3 percent at $109.87 after earlier hitting an intra-day low of $108.51, down $1.04. Brent posted a 0.5 percent loss last week. U.S. crude was down 40 cents or 0.4 percent at $85.88.

LOW HEATING OIL INVENTORIES The storm comes as low inventories of refined products, especially distillates and heating oil, have stirred concerns of potential price spikes during the winter heating season.

The precautionary refinery closures are more widespread than during Hurricane Irene in August 2011, when only Bayway - nicknamed the ``gasoline machine'' because of its key role supplying motor fuel to the New York City area - was completely shut. While refiners escaped any serious damage during that hurricane, many fear Sandy's massive storm surge - forecast to be as high as 11 feet - could breach plant defenses and cause damaging flooding, which can sometimes take weeks to repair. Abrupt power outages can also damage refinery equipment.

Sandy, forecast to come ashore late Monday or early Tuesday as one of the widest storms ever to hit the area, grew slightly stronger overnight, with wind speeds up to a maximum of 85 miles per hour, 10 mph faster than before. Tropical storm-force winds extended as far as 485 miles (780 km) from the center. In Philadelphia, the reformer at the Point Breeze section is already shut and other units, which were at cut rates late Sunday, are being shut down completely, the source said. Over the weekend, PBF Energy began cutting rates by an unspecified amount the crude unit, coker and gasoline-making fluid catalytic cracking unit at its 190,000-barrels-per-day plant in Delaware City, as well as some downstream units, a source familiar with refinery operations said on Sunday. Delta Air Lines' 185,000-bpd Monroe Energy plant in Trainer, Pennsylvania, was monitoring the storm. ``We are taking it hour to hour,'' the source said.