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UPDATE 3-Sandy cuts E.Coast fuel supplies as refiners, pipelines shut

* About 70 pct of East Coast refinery capacity shut or shutting

* Colonial Pipeline, conduit for Gulf oil products, shuts lines

* Gasoline, heating oil futures rise

NEW YORK, Oct 29 (Reuters) - The supply of gasoline, diesel and jet fuel into the U.S. East Coast ground almost to a halt on Monday as Hurricane Sandy forced the closure of two-thirds of the region's refineries, its biggest pipeline, and most major ports. Benchmark New York harbor gasoline futures jumped as much as 11 cents a gallon, with traders fearing that power outages and flooding could leave refiners struggling to restore operations after the broadest storm ever to hit the United States. With Sandy gaining strength as it nears the coast, refinery, pipeline, port and terminal operators shuttered or reduced operations, increasing the risk that bottlenecks would keep supplies of motor and heating fuel from customers. ``Given the recent tightness of supplies in New York Harbor, this weather event is only likely to perpetuate strength in gasoline prices,'' BNP Paribas oil analysts Harry Tchilinguirian and Gareth Lewis-Davies said in a research note. ``Lost distillate (heating oil and diesel) output in turn will act to depress inventories further.'' Colonial Pipeline, the nation's largest oil products pipeline that connects the East Coast to Gulf Coast refiners, said it has shut down lines servicing individual terminals along the Northeastern seaboard. Nearly 70 percent of the region's refining capacity was on track to be idled. Phillips 66 confirmed it had completely shut the 238,000-bpd Bayway, New Jersey refinery, the area's second-larget plant, known as the ``gasoline machine'' for its key role supplying motor fuel to the New York City area. Philadelphia Energy Solutions began the precautionary closure of key units at its 330,000-barrels-per-day (bpd) Philadelphia refinery, the biggest in the region. ``Many of the process units have been shut down, others are in 'standby,' and the remainder have been brought to their minimum safe operating levels,'' said Cherice Corley, a spokeswoman for the refiner. Gasoline prices rose and crude oil fell as traders factored in a supply squeeze, although some analysts said the storm would also cut heavily into oil demand in the densely populated region, with most people avoiding driving and airlines grounded during the storm. up 6 cents at $2.76 a gallon, paring gains of as much as 11 cents. Heating oil gained 1 percent to $3.12 a gallon in thin trading on the New York Mercantile Exchange's (NYMEX) electronic platform. While oil futures continued to trade electronically, the NYMEX's open-outcry trading floor was shut due to mandatory evacuations of low-lying areas around Manhattan's southern tip.

WEIGHING THE RISKS Among other plants affected by the shutdown, Hess Corp said it was closing its 70,000-bpd refinery in Port Reading, New Jersey. PBF Energy has opted to reduce rates at its 180,000-bpd Paulsboro plant in southern New Jersey, which sources said earlier had been set to shut down. Paulsboro is across the Delaware River from the Philadelphia area. ``We weighed the risks inherent in shutting down and restarting the refineries, and opted to run at reduced rates,'' PBF spokesman Michael Karlovich said in an email. The precautionary refinery closures are more widespread than during Hurricane Irene in August 2011, when only the Bayway plant shut completely. While refiners escaped any serious damage during that hurricane, many fear Sandy's massive storm surge - forecast to be as high as 11 feet (3.4 meters) - could breach plant defenses and cause damaging flooding, which can sometimes take weeks to repair. Abrupt power outages can also damage refinery equipment. Delta Air Lines' 185,000-bpd Monroe Energy plant in Trainer, Pennsylvania, was monitoring the storm. ``We are taking it hour to hour,'' a source said. Brent crude futures for December delivery slipped 17 cents or 0.2 percent to $109.38 a barrel, after hitting an intraday low of $108.51, down $1.04. Brent lost 0.5 percent last week. U.S. crude was down 96 cents, or 1.1 percent, at $85.32 a barrel.

OIL DEMAND HIT FEARED 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. ``Most of the gasoline and other fuels used in the region are supplied from refineries on the Gulf Coast, or by international suppliers'' said Roger Ihne, principal in the oil and gas practice at consultancy Deloitte. ``The distribution infrastructure, including pipelines and refined product terminals, are extremely important and could hamper recovery efforts if significant amounts of this infrastructure is damaged.'' NuStar Energy and Magellan Midstream Partners MMP.N, two of the biggest players in the nation's pipeline and storage terminal business, shut terminals along the East Coast.

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.