Union representatives at Shell Oil Co. rejected the firm's proposals for a new two-year contract yesterday as negotiators moved toward a Jan. 7 strike deadline with the nation's petroleum refining industry.

Representatives of the Oil, Chemical and Atomic Workers Union negotiating with Gulf Oil Corp. were expected to take similar action, union officials said yesterday.

Shell and Gulf made identical pay offers to the OCAW last week. The proposals, calling for a 7 percent pay increase in the first year of the contract and a 5 percent raise in the next, were the first to come from the industry in bargaining that began nearly two months ago.

OCAW President Robert F. Goss in Denver yesterday called the two offers "ridiculous" and said they failed to meet the union's demands for a "substantial pay increase" and a strict "no-layoff" provision.

Some 400 separate contracts covering 55,000 OCAW oil refinery workers expire at midnight, Jan. 7. The first contract settlements traditionally have been with the larger oil companies and have served as pattern-setters for the rest of the industry.

"The no-layoff provision is the most important part of the contract, the way the economy is going today," Goss said. "Otherwise, we sign a two-year agreement and two months later they shut the plant or sell it and the contract is meaningless."

Goss steadily has refused to say what he means by a "substantial pay increase." But other union sources, and some industry officials, have said that their understanding of "substantial" is 10 percent or more in the first year of the contract. Industry negotiators are trying to keep the annual pay increases in the single-digit range.

OCAW members received an 8 percent raise in 1979. But the union reopened that two-year contract one year later in a bid to get improved health and dental plans and a pay raise higher than the 5 percent scheduled for the second year of that agreement. The oil companies objected. The union went on strike for nearly three months and won an extra 0.52 cents an hour more, roughly a 10 percent increase over what its members received in 1979.

OCAW members currently receive an average hourly straight wage of $11.66. That figure goes to an average $15.66-an-hour, when wages and benefits are included, according to OCAW spokesman Jerry Archuleta.

Shell and Gulf last week made identical proposals for increasing their contributions to workers' hospital benefit plans. But the union wants full employer funding of hospital coverage.

Shell and Gulf currently pay a maximum monthly hospital insurance premium of $120.50 per family, and maximum of $47 for a single employe. It was not clear yesterday how much more the companies were willing to offer in that area.

However, both companies seemed determined not to yield to the union's "no-layoff" demand.