<PAGE>

================================================================================

                                  United States

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-Q

            [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE
                              SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005

                                       OR

            [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                              SECURITIES EXCHANGE ACT OF 1934

           For the transition period from ____________ to ____________

                         COMMISSION FILE NUMBER 1-14380

                           CITGO PETROLEUM CORPORATION
                           ---------------------------
             (Exact name of registrant as specified in its charter)

               DELAWARE                                      73-1173881
               --------                                      ----------
      (State or other jurisdiction of     (I. R. S. Employer Identification No.)
      incorporation or organization)

                    1293 ELDRIDGE PARKWAY, HOUSTON, TX 77077
                    ----------------------------------------
               (Address of principal executive office) (Zip Code)

                                 (832) 486-4000
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

                                       N/A
          ------------------------------------------------------------
          (Former name or former address if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
described in Rule 12b-2 of the Act): Yes [ ] No [X]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

<TABLE>
<CAPTION>
COMMON STOCK, $1.00 PAR VALUE                                  1,000
-----------------------------                                  -----
<S>                                               <C>
         (Class)                                  (outstanding at July 31, 2005)
</TABLE>

================================================================================

<PAGE>

CITGO PETROLEUM CORPORATION

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005

TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                         PAGE
                                                                                                                         ----
<S>                                                                                                                      <C>
FACTORS AFFECTING FORWARD LOOKING STATEMENTS.........................................................................      1

PART I.       FINANCIAL INFORMATION

   Item 1.    Financial Statements (Unaudited)

              Condensed Consolidated Balance Sheets - June 30, 2005 and December 31, 2004............................      2

              Condensed Consolidated Statements of Income and Comprehensive Income - Three-Month and
              Six-Month Periods Ended June 30, 2005 and 2004.........................................................      3

              Condensed Consolidated Statement of Shareholder's Equity - Six-Month Period Ended June 30, 2005........      4

              Condensed Consolidated Statements of Cash Flows - Six-Month Periods Ended June 30, 2005 and 2004.......      5

              Notes to the Condensed Consolidated Financial Statements...............................................      6

   Item 2.    Management's Discussion and Analysis of Financial Condition and
              Results of Operations..................................................................................     19

   Item 3.    Quantitative and Qualitative Disclosures About Market Risk.............................................     27

   Item 4.    Controls and Procedures................................................................................     32

PART II.      OTHER INFORMATION

   Item 1.    Legal Proceedings......................................................................................     33

   Item 6.    Exhibits...............................................................................................     33

SIGNATURES...........................................................................................................     34
</TABLE>

<PAGE>

                  FACTORS AFFECTING FORWARD LOOKING STATEMENTS

            Except for the historical information contained in this Report,
certain of the matters discussed in this Report may be deemed to be "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. Specifically, all
statements under the caption "Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations" pertaining to capital
expenditures and investments related to environmental compliance, strategic
planning, purchasing patterns of refined products and capital resources
available to CITGO Petroleum Corporation ("CITGO") are forward looking
statements. Words such as "anticipate," "estimate," "expect," "project,"
"believe" and similar expressions generally identify a forward-looking
statement.

            We caution readers that these forward looking statements are subject
to known and unknown risks and uncertainties that may cause actual results to
differ materially from the results that are projected, expressed or implied.
Some of those risks and uncertainties include:

      -     the availability and cost of crude oil, feedstocks, blending
            components and refined products, which can affect our ability to
            operate our refineries and our costs;

      -     accidents, interruptions in transportation, inclement weather and
            other events that cause unscheduled shutdowns or otherwise adversely
            affect our refineries, pipelines or equipment, or those of our
            suppliers or customers;

      -     prices or demand for CITGO products, which are influenced by general
            economic activity, weather patterns (including seasonal
            fluctuations), prices of alternative fuels, energy conservation
            efforts and actions by competitors;

      -     environmental and other regulatory requirements, which affect the
            content of our products and our operations, operating costs and
            capital expenditure requirements;

      -     costs and uncertainties associated with technological change and
            implementation;

      -     inflation; and

      -     continued access to capital markets and commercial bank financing on
            favorable terms, which can affect our ability to finance capital
            improvements, our costs and our flexibility.

            CITGO purchases approximately 40% of its crude oil requirements from
Petroleos de Venezuela, S.A., the national oil company of the Bolivarian
Republic of Venezuela and CITGO's ultimate parent corporation, under long-term
supply agreements. See Note 9 of the Notes to the Condensed Consolidated
Financial Statements for additional information.

            Readers are cautioned not to place undue reliance on these forward
looking statements, which apply only as of the date of this Report. CITGO
disclaims any duty to publicly release any revision to these forward looking
statements to reflect events or circumstances after the date of this Report.

                                       1
<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)

CITGO PETROLEUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                       JUNE 30,
                                                                                         2005        DECEMBER 31,
                                                                                     (UNAUDITED)        2004
                                                                                     -----------     ------------
<S>                                                                                  <C>             <C>
ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                                          $    28,192     $     23,033
  Accounts receivable, net                                                             1,748,592        1,292,751
  Due from affiliates                                                                    132,600          106,514
  Inventories                                                                          1,283,357        1,165,660
  Prepaid expenses and other                                                             131,835           77,696
                                                                                     -----------     ------------
            Total current assets                                                       3,324,576        2,665,654

PROPERTY, PLANT AND EQUIPMENT - Net                                                    4,066,669        4,038,505

RESTRICTED CASH                                                                            2,031            2,315

INVESTMENTS IN AFFILIATES                                                                571,729          580,647

OTHER ASSETS                                                                             342,706          356,551
                                                                                     -----------     ------------

                                                                                     $ 8,307,711     $  7,643,672
                                                                                     ===========     ============

LIABILITIES AND SHAREHOLDER'S EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                                   $ 1,107,153     $    888,030
  Payables to affiliates                                                                 938,046          674,997
  Taxes other than income                                                                289,547          290,456
  Other                                                                                  238,105          251,451
  Current portion of long-term debt                                                      244,344           11,364
  Current portion of capital lease obligation                                              5,811            4,404
                                                                                     -----------     ------------
            Total current liabilities                                                  2,823,006        2,120,702

LONG-TERM DEBT                                                                           970,688        1,120,527

CAPITAL LEASE OBLIGATION                                                                  41,433           43,755

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS                                              379,752          359,707

OTHER NONCURRENT LIABILITIES                                                             357,448          337,250

DEFERRED INCOME TAXES                                                                    898,805          939,299

COMMITMENTS AND CONTINGENCIES (Note 8)

SHAREHOLDER'S EQUITY:
  Common stock - $1.00 par value, 1,000 shares authorized, issued and outstanding              1                1
  Additional capital                                                                   1,659,698        1,659,698
  Retained earnings                                                                    1,201,860        1,088,096
  Accumulated other comprehensive loss                                                   (24,980)         (25,363)
                                                                                     -----------     ------------
            Total shareholder's equity                                                 2,836,579        2,722,432
                                                                                     -----------     ------------
                                                                                     $ 8,307,711     $  7,643,672
                                                                                     ===========     ============
</TABLE>

See notes to condensed consolidated financial statements.

                                       2
<PAGE>

CITGO PETROLEUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SUPPLEMENTAL INFORMATION)

<TABLE>
<CAPTION>
                                                                         THREE MONTHS                       SIX MONTHS
                                                                        ENDED JUNE 30,                    ENDED JUNE 30,
                                                                -----------------------------     -----------------------------
                                                                    2005             2004             2005             2004
                                                                ------------     ------------     ------------     ------------
<S>                                                             <C>              <C>              <C>              <C>
REVENUES:
  Net sales (1)                                                 $  9,961,008     $  7,963,812     $ 18,447,880     $ 14,543,531
  Sales to affiliates                                                122,951          101,370          226,348          176,880
                                                                ------------     ------------     ------------     ------------
                                                                  10,083,959        8,065,182       18,674,228       14,720,411
  Equity in earnings of affiliates                                    22,086           49,161           74,309           95,193
  Other income (expense) - net                                        12,507              897           22,030              575
                                                                ------------     ------------     ------------     ------------
                                                                  10,118,552        8,115,240       18,770,567       14,816,179

COST OF SALES AND EXPENSES:
  Cost of sales and operating expenses (1)
    (including purchases of $3,962,781, $3,131,000,
     $7,500,612 and $5,646,917 from affiliates)                    9,697,131        7,727,276       18,080,182       14,260,593
  Selling, general and administrative expenses                        76,670           69,550          156,377          140,647
  Interest expense, excluding capital lease                           17,478           38,706           34,553           70,243
  Capital lease interest charge                                          987              773            2,105            1,526
                                                                ------------     ------------     ------------     ------------
                                                                   9,792,266        7,836,305       18,273,217       14,473,009
                                                                ------------     ------------     ------------     ------------

INCOME BEFORE INCOME TAXES                                           326,286          278,935          497,350          343,170

INCOME TAXES                                                         112,569           95,806          171,586          117,870
                                                                ------------     ------------     ------------     ------------

NET INCOME                                                           213,717          183,129          325,764          225,300
                                                                ------------     ------------     ------------     ------------

OTHER COMPREHENSIVE INCOME:
   Cash flow hedges:
      Reclassification adjustment for derivative losses
         included in net income, net of related income
         taxes of $-, $44, $28 and $88                                     -               79               52              157

   Foreign currency translation gain (loss), net of related
      income taxes (benefit) of  $298, $(41), $229 and $410              535              (73)             406              729

   Minimum pension liability adjustment, net of deferred
      taxes (benefit) of $(42), $241, $(42) and $241                     (75)             428              (75)             428
                                                                ------------     ------------     ------------     ------------

OTHER COMPREHENSIVE INCOME                                               460              434              383            1,314
                                                                ------------     ------------     ------------     ------------

COMPREHENSIVE INCOME                                            $    214,177     $    183,563     $    326,147     $    226,614
                                                                ============     ============     ============     ============

SUPPLEMENTAL INFORMATION (millions of dollars)
(1)  Includes amounts related to buy/sell arrangements:
          Net sales                                             $    1,153.4     $    1,204.9     $    2,035.0     $    2,018.1
                                                                ============     ============     ============     ============
          Cost of sales and operating expenses                  $    1,124.5     $    1,156.8     $    2,076.7     $    2,053.7
                                                                ============     ============     ============     ============
</TABLE>

See notes to condensed consolidated financial statements.

                                       3
<PAGE>

CITGO PETROLEUM CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (UNAUDITED)
(DOLLARS AND SHARES IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                        ACCUMULATED
                                        COMMON STOCK                                       OTHER
                                       ---------------    ADDITIONAL      RETAINED     COMPREHENSIVE
                                       SHARES   AMOUNT     CAPITAL        EARNINGS     INCOME (LOSS)       TOTAL
                                       ------   ------   -----------    -----------    -------------    -----------
<S>                                    <C>      <C>      <C>            <C>            <C>              <C>
BALANCE, DECEMBER 31, 2004                1       $ 1    $ 1,659,698    $ 1,088,096      $ (25,363)     $ 2,722,432

Net income                                -         -              -        325,764              -          325,764

Other comprehensive income                -         -              -              -            383              383

Dividends paid to parent, PDV America     -         -              -       (212,000)             -         (212,000)

                                       ------     ----   -----------    -----------      ---------      -----------

BALANCE, JUNE 30, 2005                    1       $ 1    $ 1,659,698    $ 1,201,860      $ (24,980)     $ 2,836,579
                                       ======     ====   ===========    ===========      =========      ===========
</TABLE>

See notes to condensed consolidated financial statements.

                                       4
<PAGE>

CITGO PETROLEUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                          SIX MONTHS
                                                                                         ENDED JUNE 30,
                                                                                    -----------------------
                                                                                      2005          2004
                                                                                    ---------     ---------
<S>                                                                                 <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                        $ 325,764     $ 225,300
  Depreciation and amortization                                                       192,682       179,751
  Other adjustments to reconcile net income to net cash
     provided by operating activities                                                  18,446        59,288
  Changes in operating assets and liabilities                                        (164,724)       84,970
                                                                                    ---------     ---------
       Net cash provided by operating activities                                      372,168       549,309
                                                                                    ---------     ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                                               (179,901)     (138,942)
  Proceeds from sales of property, plant and equipment                                     46           158
  Decrease in restricted cash                                                             284         4,573
  Investments in LYONDELL-CITGO Refining LP                                           (31,244)      (12,251)
  Investments in and advances to other affiliates                                           -        (1,553)
                                                                                    ---------     ---------
       Net cash used in investing activities                                         (210,815)     (148,015)
                                                                                    ---------     ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from revolving bank loan                                                    83,000             -
  Payment of senior secured term loan                                                       -      (200,000)
  Payments on master shelf agreement senior notes                                           -       (20,000)
  Proceeds from tax-exempt bonds                                                            -        36,800
  Payments on taxable bonds                                                                 -       (25,000)
  Payments on loans from affiliates                                                   (26,100)            -
  Payments of capital lease obligations                                                  (916)       (2,350)
  Financing fees and debt issuance costs                                                 (178)         (650)
  Dividends paid to parent, PDV America                                              (212,000)            -
                                                                                    ---------     ---------
       Net cash used in financing activities                                         (156,194)     (211,200)
                                                                                    ---------     ---------

INCREASE IN CASH AND CASH EQUIVALENTS                                                   5,159       190,094

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                         23,033       202,008
                                                                                    ---------     ---------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                            $  28,192     $ 392,102
                                                                                    =========     =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the period for:
        Interest, net of amounts capitalized                                        $  41,224     $  72,428
                                                                                    =========     =========
        Income taxes (net of refunds of $1,196 in 2005 and $136 in 2004)(Note 9)    $ 262,961     $   2,323
                                                                                    =========     =========
</TABLE>

See notes to condensed consolidated financial statements.

                                       5
<PAGE>

CITGO PETROLEUM CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX-MONTHS ENDED JUNE 30, 2005 AND 2004

1.    BASIS OF PRESENTATION

      CITGO Petroleum Corporation ("CITGO" or the "Company") and its
      subsidiaries are engaged in the refining, marketing and transportation of
      petroleum products including gasoline, diesel fuel, jet fuel,
      petrochemicals, lubricants, asphalt and refined waxes, mainly within the
      continental United States east of the Rocky Mountains. The Company does
      not own any crude oil reserves or crude oil exploration or production
      facilities. It operates as a single segment. It is an indirect wholly
      owned subsidiary of Petroleos de Venezuela, S.A. ("PDVSA", which may also
      be used herein to refer to one or more of its subsidiaries), the national
      oil company of the Bolivarian Republic of Venezuela.

      The financial information for CITGO subsequent to December 31, 2004 and
      with respect to the interim three-month and six-month periods ended June
      30, 2005 and 2004 is unaudited. In management's opinion, such interim
      information contains all adjustments, consisting of normal recurring
      adjustments, necessary for a fair presentation of the results of such
      periods, as well as the write-off of costs associated with the deferral of
      a capital project. The financial information for the three-month and
      six-month periods ended June 30, 2004 has been adjusted to retrospectively
      reflect the effect of the Medicare Prescription Drug, Improvement and
      Modernization Act of 2003 ("Medicare Reform"). See Note 10 for additional
      information. The results of operations for the three-month and six-month
      periods ended June 30, 2005 and 2004 are not necessarily indicative of the
      results to be expected for the full year. Reference is made to CITGO's
      Annual Report for the fiscal year ended December 31, 2004 on Form 10-K.

2.    NEW ACCOUNTING PRONOUNCEMENTS

      In January 2003, the Financial Accounting Standards Board ("FASB") issued
      Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN
      46"), which clarifies the application of Accounting Research Bulletin No.
      51, "Consolidated Financial Statements." FIN 46 defines variable interest
      entities and how an enterprise should assess its interests in a variable
      interest entity to decide whether to consolidate that entity. In December
      2003, the FASB issued a revision of FIN 46 (FIN 46R), primarily to clarify
      the required accounting for investments in variable interest entities.
      This standard replaces FIN 46. For CITGO, which meets the definition of a
      nonpublic enterprise for purposes of applying FIN 46R, application is
      required immediately for variable interest entities created after December
      31, 2003 and for variable interest entities in which an interest is
      acquired after that date, and to all entities that are subject to FIN 46R
      by January 1, 2005. The interpretation requires certain minimum
      disclosures with respect to variable interest entities in which an
      enterprise holds significant variable interest but which it does not
      consolidate. FIN 46R may be applied prospectively with a cumulative-effect
      adjustment as of the date on which it is first applied or by restating
      previously issued financial statements for one or more years with a
      cumulative-effect adjustment as of the beginning of the first year
      restated. The Company's adoption of FIN 46R, effective January 1, 2005,
      had no impact on the financial position or results of operations for the
      six-month period ended June 30, 2005.

      In March 2005, the FASB issued Interpretation No. 47, "Accounting for
      Conditional Asset Retirement Obligations" ("FIN 47"), which clarifies the
      application of FASB Statement No. 143, "Accounting for Asset Retirement
      Obligations" ("SFAS No. 143"). FIN 47 clarifies (i) that an entity is
      required to recognize a liability for the fair value of a conditional
      asset retirement obligation when incurred if the liability's fair value
      can be reasonably estimated; and (ii) when an entity would have sufficient
      information to reasonably estimate the fair value of an asset retirement
      obligation. FIN 47 is effective no later than the end of fiscal years
      ending after December 15, 2005. Retrospective application for interim
      financial information is

                                       6
<PAGE>

      permitted but is not required. The Company has not determined the impact
      on its financial position or results of operations that may result from
      the application of FIN 47.

      In December 2004, the FASB issued FASB Staff Position No. FAS 109-1,
      "Application of FASB Statement No. 109, "Accounting for Income Taxes," to
      the Tax Deduction on Qualified Production Activities Provided by the
      American Jobs Creation Act of 2004" ("FSP FAS 109-1"). The American Jobs
      Creation Act introduces a special 9% tax deduction on qualified production
      activities. FSP FAS 109-1 clarifies that this tax deduction should be
      accounted for as a special tax deduction in accordance with FASB Statement
      No. 109. The Company does not expect the adoption of this new tax
      provision to have a material impact on its consolidated financial
      position, results of operations or cash flows.

3.    ACCOUNTS RECEIVABLE

      The Company has a limited purpose consolidated subsidiary, CITGO Funding
      Company L.L.C. ("CITGO Funding"), which established a non-recourse
      agreement to sell an undivided interest in specified trade accounts
      receivables ("pool") to independent third parties. Under the terms of the
      agreement, new receivables are added to the pool as collections
      (administered by CITGO) reduce previously sold receivables. CITGO pays
      specified fees related to its sale of receivables under the program. The
      outstanding invested amount of the interest sold to third-parties at any
      one time under the trade accounts receivable sales agreement is limited to
      a maximum of $350 million.

      As of June 30, 2005, $642 million of CITGO's accounts receivable comprised
      the designated pool of trade receivables owned by CITGO Funding. As of
      June 30, 2005, no outstanding investment in the receivables in the
      designated pool had been sold to the third party and the entire amount of
      the receivables was retained by CITGO Funding.

4.    INVENTORIES

      Inventories, primarily at LIFO, consist of the following:

<TABLE>
<CAPTION>
                           JUNE 30,
                             2005       DECEMBER 31,
                          (UNAUDITED)      2004
                          -----------   ------------
                                 (000s OMITTED)
<S>                       <C>           <C>
Refined products          $   911,476   $    787,795
Crude oil                     275,840        284,301
Materials and supplies         96,041         93,564
                          -----------   ------------

                          $ 1,283,357   $  1,165,660
                          ===========   ============
</TABLE>

5.    RESTRICTED CASH

      CITGO issued $39 million of tax-exempt environmental facilities revenue
      bonds in May 2003. The proceeds from these bonds are being used on
      qualified projects at the Corpus Christi refinery. Restricted cash of
      approximately $2 million at June 30, 2005 represents highly liquid
      investments held in trust accounts in accordance with the bond agreement.
      Funds may be released solely to finance the qualified capital expenditures
      as defined in the related bond agreement.

                                       7
<PAGE>

6.    LONG-TERM DEBT AND FINANCING ARRANGEMENTS

      Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                 JUNE 30,
                                                                   2005        DECEMBER 31,
                                                               (UNAUDITED)         2004
                                                               -----------     ------------
                                                                      (000s OMITTED)
<S>                                                            <C>             <C>
Revolving bank loans                                           $    83,000     $          -

Senior Notes, $250 million face amount, due 2011 with
   interest rate of 6%                                             248,423          248,299

Senior Notes, $150 million face amount, due 2006 with
   interest rate of 7-7/8%                                         149,980          149,969

Senior Notes, $6.6 million face amount, due 2011 with
   interest rate of 11-3/8%                                          6,616            6,613

Private Placement Senior Notes, due 2005 to 2006 with an
   interest rate of 9.30%                                           22,727           22,727

Master Shelf Agreement Senior Notes, due 2006 to
   2009 with interest rates from 7.17% to 8.94%                    165,000          165,000

Tax-Exempt Bonds, due 2007 to 2033 with variable
   and fixed interest rates                                        459,286          459,283

Taxable Bonds, due 2026 to 2028 with variable interest rate         80,000           80,000
                                                               -----------     ------------

                                                                 1,215,032        1,131,891
Current portion of long-term debt                                 (244,344)         (11,364)
                                                               -----------     ------------

                                                               $   970,688     $  1,120,527
                                                               ===========     ============
</TABLE>

      CITGO has a $260 million, three-year, unsecured revolving credit facility
      maturing in December 2005. The Company is actively reviewing and intends
      to replace the revolving bank loans when they mature.

      In October 2004, CITGO issued $250 million of 6% unsecured senior notes
      due October 15, 2011. In connection with this transaction, CITGO
      repurchased approximately $543 million principal amount of its 11-3/8%
      senior notes due 2011 as part of a tender offer for such notes. After the
      tender offer for the 11-3/8% notes in October 2004, approximately $6.6
      million remain outstanding at June 30, 2005.

      In April 1996, CITGO filed a registration statement with the Securities
      and Exchange Commission relating to the shelf registration of $600 million
      of debt securities. In May 1996, CITGO issued $200 million aggregate
      principal amount of 7-7/8% unsecured senior notes due 2006. Due to CITGO's
      credit ratings, the shelf registration statement is not presently
      available.

      Approximately $392 million of the outstanding taxable and tax-exempt bonds
      are supported by letters of credit issued by various banks.

                                       8
<PAGE>

      Our various debt instruments require maintenance of a specified minimum
      net worth and impose restrictions on our ability to: incur additional debt
      unless we meet specified interest coverage and debt to capitalization
      ratios; place liens on our property, subject to specified exceptions; sell
      assets, subject to specified exceptions; make restricted payments,
      including dividends, repurchases of capital stock and specified
      investments; and merge, consolidate or transfer assets. Various of our
      debt agreements, including the agreements governing the Private Placement
      Senior Notes and the Master Shelf Agreement Senior Notes and the
      reimbursement agreements relating to various letters of credit that
      provide liquidity support for our tax-exempt bonds, contain provisions
      requiring that we equally and ratably secure those instruments if we issue
      secured debt other than as permitted by those instruments. CITGO is in
      compliance with its covenants under its debt financing arrangements at
      June 30, 2005.

7.    INVESTMENT IN LYONDELL-CITGO REFINING LP

      LYONDELL-CITGO Refining LP ("LYONDELL-CITGO") owns and operates a 265
      thousand barrels per day refinery in Houston, Texas and is owned by
      subsidiaries of CITGO (41.25%) and Lyondell Chemical Company (58.75%)
      ("the Owners"). This refinery processes heavy crude oil supplied by PDVSA
      under a long-term supply contract that expires in 2017. CITGO purchases
      substantially all of the gasoline, diesel and jet fuel produced at the
      refinery under a long-term contract.

      As of June 30, 2005, CITGO has a note receivable from LYONDELL-CITGO of
      $35 million. The note bears interest at market rates, which was
      approximately 3.9 percent at June 30, 2005. Principal and interest are due
      January 1, 2008. Accordingly, the note and related accrued interest are
      included in the balance sheet caption other assets, noncurrent, in the
      accompanying consolidated balance sheets.

                                       9
<PAGE>

      CITGO accounts for its investment in LYONDELL-CITGO using the equity
      method of accounting and records its share of the net earnings of
      LYONDELL-CITGO based on allocations of income agreed to by the Owners
      which differ from participation interests. Cash distributions are
      allocated to the Owners based on participation interest. Information on
      CITGO's investment in LYONDELL-CITGO follows:

<TABLE>
<CAPTION>
                                                         (000s omitted)
                                                    June 30,      December 31,
                                                      2005            2004
                                                   -----------    ------------
                                                   (Unaudited)
<S>                                                <C>            <C>
Carrying value of investment                       $  399,020     $    409,782
Note receivable                                        35,278           35,278
Participation interest                                     41%              41%

Summary of LYONDELL-CITGO's financial position:
   Current assets                                  $  396,000     $    359,000
   Non current assets                               1,353,000        1,288,000
   Current liabilities                                635,000          588,000
   Noncurrent liabilities                             820,000          819,000
   Partners' capital                                  294,000          240,000
</TABLE>

<TABLE>
<CAPTION>
                                                      Six Months Ended
                                                          June 30,
                                                  ------------------------
                                                     2005          2004
                                                  ----------    ----------
                                                        (Unaudited)
<S>                                               <C>           <C>
Equity in net income                              $   52,026    $   75,552
Cash distribution received                            93,913       112,159

Summary of LYONDELL-CITGO's operating results:
   Revenue                                        $3,099,425    $2,492,695
   Gross profit                                      178,140       242,753
   Net income                                        137,630       194,015
</TABLE>

      On May 21, 2004, LYONDELL-CITGO closed on a three-year, $550 million
      credit facility to replace its expiring $520 million credit facility. The
      credit facility is comprised of a $450 million senior secured term loan
      and a $100 million senior secured revolver, both with an interest rate of
      the London Interbank Offered Rate ("LIBOR") plus 2.5 percent. The facility
      is secured by substantially all of the assets of LYONDELL-CITGO and
      contains covenants that require LYONDELL-CITGO to maintain specified
      financial ratios. In September 2004, LYONDELL-CITGO obtained an amendment
      to the facility which reduces the interest rate to LIBOR plus 2 percent
      and eases certain financial covenants, including the debt to total
      capitalization ratio. LYONDELL-CITGO had borrowed $45 million under the
      working capital revolving credit facility at June 30, 2005.

                                       10
<PAGE>

8.    COMMITMENTS AND CONTINGENCIES

      LITIGATION AND INJURY CLAIMS - Various lawsuits and claims arising in the
      ordinary course of business are pending against CITGO. CITGO records
      accruals for potential losses when, in management's opinion, such losses
      are probable and reasonably estimable. If known lawsuits and claims were
      to be determined in a manner adverse to CITGO, and in amounts greater than
      CITGO's accruals, then such determinations could have a material adverse
      effect on CITGO's results of operations in a given reporting period. The
      most significant lawsuits and claims are discussed below.

      In September 2002, a Texas court ordered CITGO to pay property owners and
      their attorneys approximately $6 million based on an alleged settlement of
      class action property damage claims as a result of alleged air, soil and
      groundwater contamination from emissions released from CITGO's Corpus
      Christi, Texas refinery. CITGO has appealed the ruling to the Texas Court
      of Appeals.

      CITGO, along with most of the other major oil companies, is a defendant in
      a number of federal and state lawsuits alleging contamination of private
      and public water supplies by methyl tertiary butyl ether ("MTBE"), a
      gasoline additive. In general, the plaintiffs claim that MTBE renders the
      water not potable. In addition to compensatory and punitive damages,
      plaintiffs seek injunctive relief to abate the contamination. CITGO
      intends to defend all of the MTBE lawsuits vigorously. CITGO's MTBE
      litigation can be divided into two categories -- pre and post-September
      30, 2003 litigation. Of the pre-September 30, 2003 cases, CITGO has
      settled the two pending cases in Madison County, Illinois state court.
      There will be no effect on results of operations because the accrual for
      these cases was adequate. The other remaining pre-September 30, 2003 case
      has been removed to federal court in Multi-District Litigation ("MDL")
      1358. The post-September 30, 2003 cases were filed after new federal
      legislation was proposed that would have precluded plaintiffs from filing
      lawsuits based on the theory that gasoline with MTBE is a defective
      product. These approximately 72 cases, the majority of which were filed by
      municipal authorities, were removed to federal court and at the
      defendants' request consolidated in MDL 1358. On March 16, 2004, the judge
      in MDL 1358 denied the plaintiffs' motion to remand the cases to state
      court. Two plaintiffs have appealed the denial of the remand to state
      court to the U.S. Court of Appeals for the Second Circuit. The Appeals
      Court denied the defendants' motion for summary affirmance of the denial
      of the remand order and the appeal will proceed. In an April 20, 2005
      ruling, the judge refused to dismiss most of the plaintiffs' causes of
      action. In doing so, the judge held that the plaintiffs might be able to
      prove liability under a commingled product market share liability theory
      because the plaintiffs could not identify the particular defendants which
      had manufactured the gasoline that caused the alleged contamination to
      drinking water supplies. CITGO management does not believe that the
      resolution of these matters will have a material adverse effect on its
      financial condition, but may have a significant effect on its results of
      operations for a given period.

      Claims have been made against CITGO in approximately 350 asbestos lawsuits
      pending in state and federal courts. These cases, most of which involve
      multiple defendants, are brought by former employees or contractor
      employees seeking damages for asbestos related illnesses allegedly caused,
      at least in part, from exposure at refineries owned or operated by CITGO
      in Lake Charles, Louisiana, Corpus Christi, Texas and Lemont, Illinois. In
      many of these cases, the plaintiffs' alleged exposure occurred over a
      period of years extending back to a time before CITGO owned or operated
      the premises at issue. CITGO does not believe that the resolution of these
      cases will have a material adverse effect on its financial condition or
      results of operations.

      In 2001, Miami-Dade County sued seventeen defendants for the costs of
      remediation of pollution rising from jet fuel operations during the past
      decades at the Miami International Airport ("the Airport"). Although not a
      defendant in this case, CITGO along with approximately 250 other former
      jet fuel operators at the Airport has received a payment demand from
      Miami-Dade County for the remediation costs for alleged pollution
      occurring while CITGO had jet fuel operations at the Airport. CITGO is
      exploring settlement discussions with Miami-Dade County. CITGO is
      contesting the amount of damages that Miami-Dade County claims are
      attributed to CITGO's jet fuel operations at the Airport and will
      vigorously defend itself should no settlement

                                       11
<PAGE>

      be reached. CITGO does not believe that the resolution of this matter will
      have a material adverse effect on its financial condition or results of
      operations.

      CITGO's Corpus Christi, Texas refinery and current and former employees
      are being investigated by state and federal agencies for alleged criminal
      violations of federal environmental statutes and regulations, including
      the CAA and the Migratory Bird Act. CITGO is cooperating with the
      investigation. CITGO believes that it has defenses to any such charges. At
      this time, CITGO management cannot predict the outcome of any such
      charges, but does not believe that the resolution of this matter will have
      a material adverse effect on its financial condition or results of
      operations.

      On April 19, 2005, CITGO received a claim from Dixie Pipeline Company
      ("Dixie") that CITGO may have injected contaminated propane into Dixie's
      pipeline system. Dixie and CITGO are cooperating to investigate the facts.
      CITGO does not have sufficient information to determine liability, if any,
      or to estimate the loss or range of loss, if any, related to this claim.

      At June 30, 2005, CITGO's balance sheet included an accrual for lawsuits
      and claims of $41 million compared with $24 million at December 31, 2004.
      CITGO estimates that an additional loss of $103 million is reasonably
      possible in connection with such lawsuits and claims.

      ENVIRONMENTAL COMPLIANCE AND REMEDIATION - CITGO is subject to the federal
      Clean Air Act ("CAA"), which includes the New Source Review ("NSR")
      program as well as the Title V air permitting program; the federal Clean
      Water Act, which includes the National Pollution Discharge Elimination
      System program; the Toxic Substances Control Act; and the federal Resource
      Conservation and Recovery Act and their equivalent state programs. CITGO
      believes it is in material compliance with the requirements of all of
      these environmental regulatory programs. CITGO does not have any material
      Comprehensive Environmental Response, Compensation and Liability Act
      ("CERCLA") liability because the former owners of many of CITGO's assets
      have by explicit contractual language assumed all or the material portion
      of CERCLA obligations related to those assets. This includes the Lake
      Charles refinery and the Lemont refinery.

      The U.S. refining industry is required to comply with increasingly
      stringent product specifications under the 1990 Clean Air Act Amendments
      for reformulated gasoline and low sulfur gasoline and diesel fuel that
      require additional capital and operating expenditures, and alters
      significantly the U.S. refining industry and the return realized on
      refinery investments.

      In addition, CITGO is subject to various other federal, state and local
      environmental laws and regulations that may require CITGO to take
      additional compliance actions and also actions to remediate the effects on
      the environment of prior disposal or release of petroleum, hazardous
      substances and other waste and/or pay for natural resource damages.
      Maintaining compliance with environmental laws and regulations could
      require significant capital expenditures and additional operating costs.
      Also, numerous other factors affect CITGO's plans with respect to
      environmental compliance and related expenditures.

      CITGO's accounting policy establishes environmental reserves as probable
      site restoration and remediation obligations become reasonably capable of
      estimation. Environmental liabilities are not discounted to their present
      value and are recorded without consideration of potential recoveries from
      third parties. Subsequent adjustments to estimates, to the extent
      required, will be made as more refined information becomes available.
      CITGO believes the amounts provided in its consolidated financial
      statements, as prescribed by generally accepted accounting principles, are
      adequate in light of probable and estimable liabilities and obligations.
      However, there can be no assurance that the actual amounts required to
      discharge alleged liabilities and obligations and to comply with
      applicable laws and regulations will not exceed amounts provided for or
      will not have a material adverse affect on CITGO's consolidated results of
      operations, financial condition and cash flows.

                                       12
<PAGE>

      In 1992, CITGO reached an agreement with the Louisiana Department of
      Environmental Quality ("LDEQ") to cease usage of certain surface
      impoundments at the Lake Charles refinery by 1994. A mutually acceptable
      closure plan was filed with the LDEQ in 1993. The remediation commenced in
      December 1993. CITGO is complying with a June 2002 LDEQ administrative
      order about the development and implementation of a corrective action or
      closure plan. CITGO and the former owner of the refinery are participating
      in the closure and sharing the related costs based on estimated
      contributions of waste and ownership periods.

      In June 1999, CITGO and numerous other industrial companies received
      notice from the United States Environmental Protection Agency ("U.S. EPA")
      that the U.S. EPA believes these companies have contributed to
      contamination in the Calcasieu Estuary, near Lake Charles, Louisiana and
      are potentially responsible parties ("PRPs") under CERCLA. The U.S. EPA
      made a demand for payment of its past investigation costs from CITGO and
      other PRPs and since 1999 has been conducting a remedial
      investigation/feasibility study ("RI/FS") under its CERCLA authority.
      While CITGO disagrees with many of the U.S. EPA's earlier allegations and
      conclusions, CITGO and other industrial companies signed in December 2003,
      a Cooperative Agreement with the LDEQ on issues relative to the Bayou
      D'Inde tributary section of the Calcasieu Estuary, and the companies are
      proceeding with a Feasibility Study Work Plan. CITGO will continue to deal
      separately with the LDEQ on issues relative to its refinery operations on
      another section of the Calcasieu Estuary. The Company still intends to
      contest this matter if necessary.

      In January and July 2001, CITGO received notices of violation ("NOVs")
      from the U.S. EPA alleging violations of the CAA. The NOVs are an
      outgrowth of an industry-wide and multi-industry U.S. EPA enforcement
      initiative alleging that many refineries, electric utilities and other
      industrial sources modified air emission sources. Without admitting any
      violation CITGO executed a Consent Decree with the United States and the
      states of Louisiana, Illinois, New Jersey, and Georgia. The Consent Decree
      requires the implementation of control equipment at CITGO's refineries and
      a Supplemental Environment Project at CITGO's Corpus Christi, Texas
      refinery. Approximately $300 million in capital costs will be incurred
      over a period of time, primarily between 2005 and 2010.

      In October 2004, the New Jersey Natural Lands Trust voted to reject the
      donation by CITGO of a conservation easement covering the 392 acre Petty's
      Island, which is located in the Delaware River in Pennsauken, New Jersey
      and owned by CITGO. Petty's Island contains a CITGO closed petroleum
      terminal and other industrial facilities, but it is also the habitat for
      the bald eagle and other wildlife. The City of Pennsauken, through a
      private developer, wants to condemn Petty's Island through eminent domain
      and to redevelop Petty's Island into residential and commercial uses. The
      granting of the conservation easement would have mitigated the amount of
      remediation that CITGO would have to perform on Petty's Island. The
      ultimate outcome cannot be determined at this time.

      At June 30, 2005, CITGO's balance sheet included an environmental accrual
      of $70 million compared with $65 million at December 31, 2004. Results of
      operations reflect an increase in the accrual during 2005 due primarily to
      a revision of the Company's estimated share of costs related to two sites
      indicating higher costs offset in part, by spending on environmental
      projects. CITGO estimates that an additional loss of $31 million is
      reasonably possible in connection with environmental matters.

      Various regulatory authorities have the right to conduct, and from time to
      time do conduct, environmental compliance audits or inspections of CITGO
      and its subsidiaries' facilities and operations. Those compliance audits
      or inspections have the potential to reveal matters that those authorities
      believe represent non-compliance in one or more respects with regulatory
      requirements and for which those authorities may seek corrective actions
      and/or penalties in an administrative or judicial proceeding. Based upon
      current information, CITGO does not believe that any such prior compliance
      audit or inspection or any resulting proceeding will have a material
      adverse effect on its future business and operating results, other than
      matters described above.

                                       13
<PAGE>

      Conditions which require additional expenditures may exist with respect to
      CITGO's various sites including, but not limited to, its operating
      refinery complexes, former refinery sites, service stations and crude oil
      and petroleum product storage terminals. Based on currently available
      information, CITGO cannot determine the amount of any such future
      expenditures.

      DERIVATIVE COMMODITY AND FINANCIAL INSTRUMENTS - As of June 30, 2005,
      CITGO's petroleum commodity derivatives included exchange traded futures
      contracts, forward purchase and sale contracts, exchange traded and
      over-the-counter options and over-the-counter swaps. At June 30, 2005, the
      balance sheet captions prepaid expenses and other current assets and other
      current liabilities include $28 million and $29 million, respectively,
      related to the fair values of open commodity derivatives.

      GUARANTEES - As of June 30, 2005, the Company has guaranteed the debt of
      others in a variety of circumstances including letters of credit issued
      for an affiliate, bank debt of an equity investment, bank debt of
      customers and financing debt incurred by an equity investment as shown in
      the following table:

<TABLE>
<CAPTION>
                                                       Expiration
                                                          Date
                                                       -----------
                                      (000s omitted)
<S>                                   <C>              <C>
Letters of credit                        $32,981       2005 - 2006

Bank debt
     Equity investment                     5,500          none
     Customers                               978          2006

Financing debt
     Equipment acquisition - NISCO         8,510          2008
                                         -------
     Total                               $47,969
                                         =======
</TABLE>

      In each case, if the debtor fails to meet its obligation, CITGO could be
      obligated to make the required payment. The Company has not recorded any
      amounts on the Company's balance sheet relating to these guarantees.

      In the event of debtor default on the letters of credit, CITGO has been
      indemnified by PDV Holding, Inc., the direct parent of PDV America, which
      is CITGO's direct parent. In the event of debtor default on the equity
      investment bank debt, CITGO has no recourse. In the event of debtor
      default on customer bank debt, CITGO generally has recourse to personal
      guarantees from principals or liens on property. In the event of debtor
      default on financing debt incurred by an equity investee, CITGO has no
      recourse.

      CITGO has granted indemnities to the buyers in connection with past sales
      of product terminal facilities. These indemnities provide that CITGO will
      accept responsibility for claims arising from the period in which CITGO
      owned the facilities. Due to the uncertainties in this situation, the
      Company is not able to estimate a liability relating to these indemnities.

      The Company has not recorded a liability on its balance sheet relating to
      product warranties because historically, product warranty claims have not
      been significant.

                                       14
<PAGE>

9.    RELATED PARTY TRANSACTIONS

      CITGO purchases approximately 40% of the crude oil processed in its
      refineries from subsidiaries of PDVSA under long-term supply agreements.
      These supply agreements extend through the year 2006 for the Lake Charles
      refinery, 2010 for the Paulsboro refinery, 2012 for the Corpus Christi
      refinery and 2013 for the Savannah refinery. CITGO and PDVSA are
      evaluating possible changes to certain provisions and conditions of these
      supply agreements, including the pricing mechanisms, volumes and term. If
      PDVSA and CITGO determine to pursue these changes and are able to
      successfully negotiate any related amendments to the supply agreements,
      the effectiveness of these amendments may require the consent of some of
      the holders of CITGO's outstanding debt.

      These crude supply agreements contain force majeure provisions that excuse
      the performance by either party of its obligations under the agreement
      under specified circumstances.

      Three affiliates entered into agreements to advance excess cash to the
      Company from time to time under demand notes for amounts of up to a
      maximum of $10 million with PDV Texas, Inc. ("PDV Texas"), $30 million
      with PDV America and $10 million with PDV Holding. The notes bear interest
      at rates equivalent to 30-day LIBOR plus 0.875% payable quarterly. At June
      30 2005, there was no outstanding balance on these notes. At December 31,
      2004, the amounts outstanding on these notes were $7 million, $14 million
      and $5 million from PDV Texas, PDV America and PDV Holding, respectively.

      The Company and PDV Holding are parties to a tax allocation agreement that
      is designed to provide PDV Holding with sufficient cash to pay its
      consolidated income tax liabilities. PDV Holding appointed CITGO as its
      agent to handle the payment of such liabilities on its behalf. As such,
      CITGO calculates the taxes due, allocates the payments among the tax
      allocation agreement members according to the agreement and bills each
      member accordingly. Each member records its amounts due from or payable to
      CITGO in a related party account. At June 30, 2005 and December 31, 2004,
      CITGO had net related party receivables related to federal income taxes of
      $103 million and $28 million, respectively, which is included in due from
      affiliates.

                                       15
<PAGE>

10.   EMPLOYEE BENEFIT PLANS

      COMPONENTS OF NET PERIODIC BENEFIT COST

            For the three months ended June 30:

<TABLE>
<CAPTION>
                                        PENSION BENEFITS           OTHER BENEFITS
                                      ---------------------     ---------------------
                                        2005         2004         2005         2004
                                                      (000s OMITTED)
<S>                                   <C>          <C>          <C>          <C>
Service cost                          $  5,920     $  5,743     $  2,359     $  2,285
Interest cost                            8,303        7,954        5,922        5,767
Expected return on plan assets          (8,124)      (7,285)         (19)         (18)
Amortization of Transition Asset            (5)         (12)           -            -
Amortization of prior service cost        (193)        (193)        (123)        (130)
Amortization of net loss                 1,540          818        4,536        4,911
                                      --------     --------     --------     --------

Net periodic benefit cost             $  7,441     $  7,025     $ 12,675     $ 12,815
                                      ========     ========     ========     ========
</TABLE>

            For the six months ended June 30:

<TABLE>
<CAPTION>
                                        PENSION BENEFITS            OTHER BENEFITS
                                      ---------------------     ---------------------
                                        2005         2004         2005         2004
                                                      (000s OMITTED)
<S>                                   <C>          <C>          <C>          <C>
Service cost                          $ 11,840     $ 11,486     $  4,718     $  4,570
Interest cost                           16,606       15,907       11,844       11,534
Expected return on plan assets         (16,248)     (14,571)         (38)         (36)
Amortization of Transition Asset           (10)         (23)           -            -
Amortization of prior service cost        (386)        (386)        (246)        (260)
Amortization of net loss                 3,080        1,636        9,072        9,822
                                      --------     --------     --------     --------

Net periodic benefit cost             $ 14,882     $ 14,049     $ 25,350     $ 25,630
                                      ========     ========     ========     ========
</TABLE>

      EFFECT OF RECENT LEGISLATION ON OTHER BENEFITS COST

      In December 2003, the Medicare Prescription Drug, Improvement and
      Modernization Act of 2003 ("Medicare Reform") was signed into law.
      Medicare Reform introduces a prescription drug benefit under Medicare
      (Medicare Part D) as well as a non-taxable federal subsidy to sponsors of
      retiree health care benefit plans that provide a benefit that is at least
      actuarially equivalent to Medicare Part D. In May 2004, the FASB Staff
      issued FASB Staff Position No. FAS 106-2, "Accounting and Disclosure
      Requirements Related to the Medicare Prescription Drug, Improvement and
      Modernization Act of 2003". The Staff Position permits a sponsor to report
      the effects of Medicare Reform prospectively in the third quarter of 2004
      or retrospectively to the measurement date following enactment of the
      legislation. CITGO has chosen to use the retrospective method to reflect
      Medicare Reform as of January 1, 2004. The effect of this legislation at
      that date was to reduce the benefit obligation by approximately $40
      million. The service cost and interest cost components of that reduction
      total approximately $3 million. Under CITGO's accounting policy for
      recognizing actuarial gains, net periodic benefit cost for the quarter and
      six-month period ended June 30, 2004 and the year ended December 31, 2004
      was reduced $10 million, $20 million and $40 million, respectively,
      related to this actuarial gain. The financial information for the quarter
      and six-month period ended June 30, 2004 has been adjusted to
      retrospectively reflect the $10 million and $20 million reduction of
      benefit costs, respectively.

                                       16
<PAGE>

      EMPLOYER CONTRIBUTIONS

      CITGO expects to contribute approximately $13 million to its pension plan
      in 2005. No contributions were made in the six-month period ended June 30,
      2005.

11.   CORPORATE HEADQUARTERS RELOCATION

      In April 2004, CITGO announced its decision to move its corporate
      headquarters from Tulsa, Oklahoma to Houston, Texas. The transfer of
      approximately 700 positions from a total of approximately 1,000 positions
      in Tulsa began in August 2004. At June 30, 2005, approximately 600
      positions have been transferred. While the relocation was substantially
      completed in July 2005, CITGO expects related costs will continue to be
      incurred over the next six months. A summary of relocation costs follows:

<TABLE>
<CAPTION>
                                      Expected       Amount        Cumulative
                                        Total       Incurred         Amount
                                       Amount   2nd Quarter 2005    Incurred
                                      --------  ----------------   ----------
                                                ($ in millions)
<S>                                   <C>       <C>                <C>
Relocation costs                       $  37          $  3            $ 23
Severance and related costs               19             -              15
Property and leasehold improvements       29             8              29
                                       -----          ----            ----
   Total                               $  85          $ 11            $ 67
                                       =====          ====            ====
</TABLE>

      During the second quarter 2005, the expected total cost of the relocation
      was reduced to $85 million from $90 million. Relocation costs and
      severance and related costs are included in CITGO's condensed consolidated
      statement of income and comprehensive income as a component of the caption
      selling, general and administrative expense. Costs related to property and
      leasehold improvements are included in CITGO's condensed consolidated
      balance sheet as a component of the caption property, plant and equipment.
      An accrual of $10 million related to the relocation is included in CITGO's
      condensed consolidated balance sheet as a component of the caption current
      liabilities other.

12.   OTHER INFORMATION

      As previously reported, CITGO received an informal inquiry from the
      Securities and Exchange Commission ("SEC") seeking information from CITGO
      regarding a previously reported inquiry being conducted by a special
      commission of the Venezuelan National Assembly (the "VNA"), previously
      reported allegations made by a CITGO employee in a letter sent to both
      CITGO's auditors as well as the SEC, and CITGO's October 2004 tender offer
      for its 11-3/8% senior notes. CITGO is cooperating and has provided the
      requested information to the SEC.

      On July 27, 2005, the VNA announced that it had concluded its inquiry. No
      claims of wrongdoing were made against CITGO or its directors, officers or
      employees as a result of the inquiry.

      In March 2005, a CITGO employee sent a memorandum to both CITGO's auditors
      and the SEC referencing the VNA inquiry and matters related to CITGO's
      internal audit department. As previously reported, an independent counsel
      investigation did not find any evidence of any acts or omissions that
      could have resulted in material misstatements in any of CITGO's previously
      issued financial statements or any other acts or omissions by

                                       17
<PAGE>

      CITGO in violation of federal securities laws; however, they took note of,
      but did not address matters that were the subject of, pending internal
      reviews. These reviews involve payments beginning in 1999, a portion of
      which were made for the benefit of the Venezuelan Government which owns
      PDVSA, CITGO's ultimate parent entity. These payments include scholarship
      payments made to several Venezuelan students, payments made to assist the
      Venezuelan Embassy in Washington, D.C. with building improvements and
      event costs, travel expenses paid on behalf of Venezuelan Government
      officials in connection with business conferences in the United States or
      visits to CITGO's facilities, and payments for various cultural and
      charitable activities. The aggregate amount of such payments is not
      material. CITGO is continuing to review those payments as well as their
      compliance with applicable law. A second independent counsel was retained
      to investigate the employee's allegations regarding the management and
      integrity of the Company's internal audit department. The second
      independent counsel concluded that there was no substance to such
      allegations.

13.   CAPITAL PROJECT DEFERRAL

      The Company periodically reviews investment decisions based on market
      conditions, availability of supply, and optimization of investments and
      synergies with other CITGO sites. As the result of such a review, the
      Company has decided to indefinitely defer a capital project at its Corpus
      Christi refinery related to production of ultra low sulfur diesel fuel.
      Accordingly, results for the six months ended June 30, 2005 include, in
      cost of sales, a charge against income of approximately $22 million to
      write off the costs incurred to date on the project. Approximately $13
      million in work in process assets were removed from net, property, plant
      and equipment, and approximately $9 million was included in other current
      liabilities for additional expenses and cancellation charges.

                                       18
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

      This discussion of our financial condition and results of operations
should be read in conjunction with our unaudited condensed consolidated
financial statements included elsewhere in this report.

      We generated net income of $214 million on total revenue of $10.1 billion
in the quarter ended June 30, 2005 compared to net income of $183 million on
total revenue of $8.1 billion for the same period last year. We generated net
income of $326 million on total revenue of $18.8 billion in the six-month period
ended June 30, 2005 compared to net income of $225 million on total revenue of
$14.8 billion for the same period last year. (See "Gross margin").

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

      We make a number of significant estimates, assumptions and judgments in
the preparation of our financial statements. We direct your attention to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Critical Accounting Policies" in our Form 10-K annual report for
our fiscal year ended December 31, 2004, for a discussion of the estimates and
judgments necessary in our accounting for environmental expenditures, litigation
and injury claims, health care costs and pensions.

                                       19
<PAGE>

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                THREE MONTHS       INCREASE         SIX MONTHS         INCREASE
                                               ENDED JUNE 30,     (DECREASE)       ENDED JUNE 30,     (DECREASE)
                                               2005     2004      FROM 2004       2005      2004       FROM 2004
                                              -------  ------  ---------------  --------- --------  ----------------
<S>                                           <C>      <C>     <C>              <C>       <C>       <C>
(DOLLARS IN MILLIONS)

Net sales                                     $ 9,961  $7,964  $    1,997       $  18,448 $ 14,543  $      3,905
Sales to affiliates                               123     101          22             226      177            49
                                              -------  ------  ----------       --------- --------  ------------
                                               10,084   8,065       2,019  25%     18,674   14,720         3,954  27%
                                              -------  ------  ----------       --------- --------  ------------

Equity in earnings of affiliates                   22      49         (27)             74       95           (21)
Other income (expense), net                        12       1          11              22        1            21
                                              -------  ------  ----------       --------- --------  ------------
                                               10,118   8,115       2,003  25%     18,770   14,816         3,954  27%
                                              -------  ------  ----------       --------- --------  ------------

Cost of sales and operating expenses            9,697   7,727       1,970          18,080   14,261         3,819
Selling, general and administrative expenses       77      70           7             156      141            15
Interest expense, excluding capital lease          17      38         (21)             35       70           (35)
Capital lease interest charge                       1       1           -               2        1             1
                                              -------  ------  ----------       --------- --------  ------------
                                                9,792   7,836       1,956  25%     18,273   14,473         3,800  26%
                                              -------  ------  ----------       --------- --------  ------------

Income before income taxes                        326     279          47             497      343           154
Income taxes                                      112      96          16             171      118            53
                                              -------  ------  ----------       --------- --------  ------------
Net income                                    $   214  $  183  $       31  17%  $     326 $    225  $        101  45%
                                              =======  ======  ==========       ========= ========  ============

Gulf Coast 3/2/1 crack spread ($ per bbl) (1) $  9.50  $ 8.98  $     0.52   6%  $    7.88 $   7.60  $       0.28   4%
Average price per gallon of gasoline (2)      $  1.56  $ 1.29  $     0.27  21%  $    1.46 $   1.19  $       0.27  23%
Average cost per barrel of crude oil (3)      $ 44.32  $34.39  $     9.93  29%  $   43.28 $  32.76  $      10.52  32%
</TABLE>

---------------------
(1)   The Gulf Coast 3/2/1 crack spread is used as a benchmark for gauging
      changes in refining industry margins based upon a hypothetical yield from
      a barrel of crude oil. It is calculated as the value of two-thirds barrel
      of gasoline plus one-third barrel of distillate minus one barrel of crude
      (West Texas Intermediate or "WTI"). Heavy crude refiners also evaluate the
      light/heavy crude spread (WTI minus Maya). The sum of these benchmarks is
      the heavy crack spread. During the second quarter of 2005, the heavy crack
      spread was $22.56 per barrel versus $17.63 per barrel during the second
      quarter of 2004. During the first six months of 2005, the heavy crack
      spread was $22.95 per barrel versus $16.67 per barrel for the same period
      in 2004. The values used to calculate the Gulf Coast 3/2/1 crack spread
      and the heavy crack spread are obtained from Platts (an energy industry
      information reporting service) using an average of daily prices for the
      three-month and six-month periods ended June 30, 2005 and 2004 (excluding
      weekends and holidays).

(2)   The average price per gallon of gasoline is based on CITGO gasoline sales
      revenue divided by CITGO gasoline sales volume. See the "CITGO Sales
      Revenues and Volumes" table that follows.

(3)   The average cost per barrel of crude oil is based on CITGO's crude oil
      cost divided by CITGO refinery crude inputs. See the "CITGO Cost of Sales
      and Operating Expenses" table that follows.

                                       20
<PAGE>

      Sales revenues and volumes. Sales increased $2 billion, or approximately
25%, in the three-month period ended June 30, 2005 as compared to the same
period in 2004. This increase was primarily due to an increase in average sales
price of 28%. Sales increased $4 billion, or approximately 27%, in the six-month
period ended June 30, 2005 as compared to the same period in 2004. This increase
was primarily due to an increase in average sales price of 30%. The following
table summarizes the sources of our sales revenues and sales volumes for the
three-month and six-month periods ended June 30, 2005 and 2004:

                        CITGO SALES REVENUES AND VOLUMES

<TABLE>
<CAPTION>
                                          THREE MONTHS        SIX MONTHS          THREE MONTHS      SIX MONTHS
                                         ENDED JUNE 30,     ENDED JUNE 30,        ENDED JUNE 30,   ENDED JUNE 30,
                                       -----------------  ------------------  ------------------  ---------------
                                         2005     2004      2005      2004      2005      2004     2005     2004
                                       --------  -------  --------  --------  --------  --------  -------  ------
                                                    ($ in millions)                    (Gallons in millions)
<S>                                    <C>       <C>      <C>       <C>       <C>       <C>       <C>      <C>
Gasoline                               $  5,214  $ 4,713  $  9,541  $  8,437     3,349     3,659    6,530   7,098
Jet fuel                                    935      602     1,790     1,190       592       574    1,199   1,172
Diesel/#2 fuel                            2,364    1,413     4,482     2,821     1,518     1,411    3,042   2,908
Asphalt                                     293      284       412       389       356       396      522     561
Petrochemicals and industrial products    1,053      835     2,027     1,491       806       757    1,528   1,425
Lubricants and waxes                        207      177       382       329        72        73      139     137
                                       --------  -------  --------  --------     -----     -----  ---------------
       Total refined product sales       10,066    8,024    18,634    14,657     6,693     6,870   12,960  13,301
Other sales                                  18       41        40        63
                                       --------  -------  --------  --------     -----     -----  ---------------
       Total sales                     $ 10,084  $ 8,065  $ 18,674  $ 14,720     6,693     6,870   12,960  13,301
                                       ========  =======  ========  ========     =====     =====  ===============
</TABLE>

       Equity in earnings of affiliates. The table below shows the changes
during the three-month and six-month periods ended June 30, 2005 compared to the
same periods in 2004 in the equity in earnings of affiliates. The decrease in
LYONDELL-CITGO's earnings in the second quarter and the first six months of 2005
as compared to the same periods in 2004 was due primarily to lower crude
processing rates during the second quarter of 2005 which were a result of
unplanned plant maintenance and an outage of an external processor of refinery
produced gas.

<TABLE>
<CAPTION>
                        THREE MONTHS                    SIX MONTHS
                        ENDED JUNE 30,   INCREASE      ENDED JUNE 30,     INCREASE
                      ----------------  (DECREASE)  -------------------  (DECREASE)
                        2005     2004   FROM 2004     2005       2004    FROM 2004
                      -------   ------  ----------  ---------  --------  ----------
                                           ($ in millions)
<S>                   <C>       <C>     <C>         <C>        <C>       <C>
LYONDELL-CITGO        $     9   $   41  $     (32)  $     52   $     76  $      (24)
Pipeline investments       10        9          1         20         19           1
Other                       3       (1)         4          2          -           2
                      -------   ------  ---------   --------   --------  ----------
     Total            $    22   $   49  $     (27)  $     74   $     95  $      (21)
                      =======   ======  =========   ========   ========  ==========
</TABLE>

                                       21
<PAGE>

      Cost of sales and operating expenses. The following table summarizes our
cost of sales and operating expenses for the three-month and six-month periods
ended June 30, 2005 and 2004:

                   CITGO COST OF SALES AND OPERATING EXPENSES

<TABLE>
<CAPTION>
                                                        THREE MONTHS       SIX MONTHS
                                                       ENDED JUNE 30,    ENDED JUNE 30,
                                                    -----------------  -----------------
                                                      2005     2004      2005     2004
                                                    -------  --------  --------  -------
                                                                ($ in millions)
<S>                                                 <C>      <C>       <C>       <C>
Crude oil                                           $ 3,245  $  2,282  $  5,926  $ 3,915
Refined products                                      5,283     4,307     9,812    8,081
Intermediate feedstocks                                 596       551     1,354    1,252
Refining and manufacturing costs                        442       382       812      745
Other operating costs and expenses                      131       205       176      268
                                                    -------  --------  --------  -------
        Total cost of sales and operating expenses  $ 9,697  $  7,727  $ 18,080  $14,261
                                                    =======  ========  ========  =======
</TABLE>

      We purchase refined products to supplement the production from our
refineries in order to meet marketing demands and to optimize distribution.
Refined product purchases represented 54% and 56% of total cost of sales and
operating expenses for the second quarters of 2005 and 2004, respectively and
54% and 57% for the first six months of 2005 and 2004, respectively. Margins on
purchased products, on average, are lower than margins on refinery produced
products because refinery produced products benefit from the whole supply chain
upgrade and purchased refined products do not. However, purchased products are
not segregated from our produced products and margins may vary due to market
conditions and other factors beyond our control. In the near term, other than
normal refinery turnaround maintenance, we do not anticipate operational actions
or market conditions which might cause a material change in anticipated
purchased product requirements; however, there could be events beyond our
control which impact the volume of refined products purchased. (See also
"Factors Affecting Forward Looking Statements".)

      The Company periodically reviews investment decisions based on market
conditions, availability of supply, and optimization of investments and
synergies with other CITGO sites. As the result of such a review, the Company
has decided to indefinitely defer a capital project at its Corpus Christi
refinery related to production of ultra low sulfur diesel fuel. Accordingly,
results for the six months ended June 30, 2005 include a charge against income
of approximately $22 million to write off the costs incurred to date on the
project. In addition, the deferral of the project will reduce previously
estimated capital expenditures by approximately $194 million over the five-year
period from 2005 through 2009.

      Gross margin. Gross margin increased approximately 0.9 cents per gallon in
the quarter ended June 30, 2005 compared to the same period in 2004 and 1.1
cents per gallon in the six months ended June 30, 2005 compared to the same
period in 2004. Gross margin for the quarter ended June 30, 2005 was
approximately 5.8 cents per gallon compared to gross margin of approximately 4.9
cents per gallon for the same period in 2004. Gross margin for the six months
ended June 30, 2005 was approximately 4.6 cents per gallon compared to the gross
margin of approximately 3.5 cents per gallon for the same period in 2004.

      Revenue per gallon for the second quarter 2005 increased approximately 28%
compared to the second quarter 2004 and increased approximately 30% for the
first six months of 2005 compared to the first six months of 2004. Cost of sales
and operating expenses per gallon for the quarter ended June 30, 2005 increased
approximately 29% compared to the same period in 2004 and for the six months
ended June 30, 2005 increased approximately 30% compared to the same period in
2004.

                                       22
<PAGE>

      A change in the price of crude oil, feedstocks and blending products
generally results in a corresponding change in the sales price of refined
products. The impact of changes in crude oil and feedstock prices on our
consolidated income before taxes depends, in part, on how quickly refined
product prices are adjusted to reflect these changes in feedstock costs.

      Selling, general and administrative expenses. Selling, general and
administrative expenses increased $7 million, or 10% from $70 million in the
second quarter of 2004 to $77 million in the second quarter of 2005. Selling,
general and administrative expenses increased $15 million, or 11% from $141
million in the first six months of 2004 to $156 million in the first six months
of 2005. The increase is primarily a result of the decision to relocate the
corporate headquarters. Selling, general and administrative expenses for the
second quarter and first six months of 2004 have been reduced by the subsidy
allowed under Medicare Reform (see Note 10 of the Notes to the Condensed
Consolidated Financial Statements).

      Interest expense. Interest expense, including capital lease interest
charge, decreased $21 million in the three-month period ended June 30, 2005 as
compared to the same period in 2004 and decreased $34 million in the six-month
period ended June 30, 2005 as compared to the same period in 2004. The decrease
in interest expense for the quarter and six-month period reflects the retirement
of the senior secured term loan during the second quarter of 2004 and the
redemption in October 2004 of approximately $543 million of our 11-3/8% notes
due 2011.

LIQUIDITY AND CAPITAL RESOURCES

      The following summarizes cash flows during the six-month periods ended
June 30, 2005 and 2004:

<TABLE>
<CAPTION>
                                    Six Months
                                   Ended June 30,
                                 ----------------
                                  2005     2004
                                 ------   -------
                                     ($ in millions)
<S>                              <C>      <C>
Net cash provided by/(used in):
    Operating activities         $  372   $   549
    Investing activities         $ (211)  $  (148)
    Financing activities         $ (156)  $  (211)
</TABLE>

Cash Provided by Operating Activities

      Consolidated net cash provided by operating activities totaled
approximately $372 million for the six-month period ended June 30, 2005.
Operating cash flows were derived primarily from net income of $326 million,
depreciation and amortization of $193 million, distributions in excess of equity
in earnings of affiliates of $36 million, decrease in deferred taxes of $41
million, asset retirements of $16 million and changes in operating assets and
liabilities of ($165) million. The more significant changes in operating assets
and liabilities include an increase in notes and accounts receivable,
inventories and prepaid expenses, offset in part, by an increase in current
liabilities.

                                       23
<PAGE>

Cash Used in Investing Activities

      Net cash used in investing activities in the six-month period ended June
30, 2005 totaled $211 million consisting primarily of capital expenditures of
$180 million. These capital expenditures consisted of:

<TABLE>
<CAPTION>
                                Six Months Ended
                                 June 30, 2005
                                ----------------
                                ($ in millions)
<S>                             <C>
Regulatory requirements         $             87
Maintenance capital projects                  35
Strategic capital expenditures                58
                                ----------------
   Total capital expenditures   $            180
                                ================
</TABLE>

      See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" in our Form 10-K for
the year ended December 31, 2004 for additional information concerning projected
capital expenditures.

Cash Used in Financing Activities

      Net cash used in financing activities totaled $156 million for the
six-month period ended June 30, 2005, consisting primarily of the payment of
$212 million in dividends to PDV America, our parent company, and the payment of
loans from affiliates, offset in part by proceeds from our revolving bank loan.

      As of June 30, 2005, capital resources available to us included cash on
hand totaling $28 million generated by operations and other sources, and
available borrowing capacity under our committed bank facilities of $171
million.

      On October 22, 2004, we issued $250 million aggregate principal amount of
our 6% unsecured senior notes due October 15, 2011. On that date, we used the
net proceeds from that note issue, together with cash on hand, to repurchase
approximately $543 million aggregate principal amount of our 11-3/8% senior
notes due 2011 that had been tendered to us in accordance with a tender offer we
made for those notes. We also received the necessary consents of the holders of
those notes to amend the indenture governing those notes to remove substantially
all of the restrictive covenants and specified events of default.

      Our various debt instruments require maintenance of a specified minimum
net worth and impose restrictions on our ability to:

   -    incur additional debt unless we meet specified interest coverage and
        debt to capitalization ratios;

   -    place liens on our property, subject to specified exceptions;

   -    sell assets, subject to specified exceptions;

   -    make restricted payments, including dividends, repurchases of
        capital stock and specified investments; and

   -    merge, consolidate or transfer assets.

      We are in compliance with the covenants under our debt financing
arrangements at June 30, 2005.

                                       24
<PAGE>

      Upon the occurrence of a change of control of our Company, as defined in
the indenture governing our 6% senior notes due 2011, coupled with a rating
decline on these notes, the holders of those notes have the right to require us
to repurchase them at a price equal to 101% of the principal amount plus accrued
interest. In addition, our bank credit agreements and the reimbursement
agreements governing various of the letters of credit issued to provide
liquidity support for our tax-exempt bonds provide that, unless lenders holding
two-thirds of the commitments thereunder otherwise agree, a change in control of
our Company, as defined in those agreements, will constitute a default under
those credit agreements.

      Various of our debt agreements, including the agreements governing the
Private Placement Senior Notes and the Master Shelf Agreement Senior Notes and
the reimbursement agreements relating to various letters of credit that provide
liquidity support for our tax-exempt bonds, contain provisions requiring that we
equally and ratably secure those instruments if we issue secured debt other than
as permitted by those instruments.

      We believe that we will have sufficient resources to carry out planned
capital spending programs, including regulatory and environmental projects in
the near term, and to meet currently anticipated future obligations and other
planned expenditures as they arise. We periodically evaluate other sources of
capital in the marketplace and anticipate that long-term capital requirements
will be satisfied with current capital resources and future financing
arrangements. Our ability to obtain such financing will depend on numerous
factors, including market conditions, compliance with existing debt covenants
and the perceived creditworthiness of the Company at that time. See also
"Factors Affecting Forward Looking Statements."

      Three of our affiliates entered into agreements to advance excess cash to
us from time to time under demand notes. These notes provide for maximum amounts
of $10 million from PDV Texas, $30 million from PDV America and $10 million from
PDV Holding. At June 30, 2005 there was no outstanding balance on these notes.
At December 31, 2004, the amounts outstanding on these notes were $7 million,
$14 million and $5 million from PDV Texas, PDV America and PDV Holding,
respectively.

      As of June 30, 2005, CITGO had an effective shelf registration with the
SEC under which it could have publicly offered up to $400 million principal
amount of debt securities. Due to CITGO's current credit ratings, the shelf
registration statement is not presently available.

      On July 8, 2005, Moody's Investors Service upgraded our senior unsecured
debt rating to Ba1. Our debt ratings, as currently assessed by the three major
debt rating agencies, are as follows:

<TABLE>
<CAPTION>
                                     Unsecured
                                     ---------
<S>                                  <C>
Moody's Investors Service               Ba1
Standard & Poor's Ratings Group         BB
Fitch Investors Services, Inc.          BB
</TABLE>

      On March 17, 2005, we established an accounts receivable sales facility.
This facility allows the non-recourse sale of specified accounts receivable to
independent third parties. A maximum of $350 million in accounts receivable may
be sold at any one time. As of June 30, 2005, no receivables had been sold under
this facility.

      Our debt instruments do not contain any covenants that trigger increased
costs or burdens as a result of an adverse change in our securities ratings.
However, certain of our guarantee agreements, which support approximately $33
million letters of credit of PDV Texas, an affiliate, require us to cash
collateralize the applicable letters of credit upon a reduction of our credit
rating below a stated level.

      We believe that we have adequate liquidity from existing sources to
support our operations for the foreseeable future.

                                      25
<PAGE>


NEW ACCOUNTING STANDARDS

      In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"),
which clarifies the application of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements." FIN 46 defines variable interest entities
and how an enterprise should assess its interests in a variable interest entity
to decide whether to consolidate that entity. In December 2003, the FASB issued
a revision of FIN 46 (FIN 46R), primarily to clarify the required accounting for
investments in variable interest entities. This standard replaces FIN 46. For
CITGO, which meets the definition of a nonpublic enterprise for purposes of
applying FIN 46R, application is required immediately for variable interest
entities created after December 31, 2003 and for variable interest entities in
which an interest is acquired after that date, and to all entities that are
subject to FIN 46R by January 1, 2005. The interpretation requires certain
minimum disclosures with respect to variable interest entities in which an
enterprise holds significant variable interest but which it does not
consolidate. FIN 46R may be applied prospectively with a cumulative-effect
adjustment as of the date on which it is first applied or by restating
previously issued financial statements for one or more years with a
cumulative-effect adjustment as of the beginning of the first year restated. The
Company's adoption of FIN 46R, effective January 1, 2005, had no impact on the
financial position or results of operations for the six-month period ended June
30, 2005.

      In March 2005, the FASB issued Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" ("FIN 47"), which clarifies the
application of FASB Statement No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143"). FIN 47 clarifies (i) that an entity is required
to recognize a liability for the fair value of a conditional asset retirement
obligation when incurred if the liability's fair value can be reasonably
estimated; and (ii) when an entity would have sufficient information to
reasonably estimate the fair value of an asset retirement obligation. FIN 47 is
effective no later than the end of fiscal years ending after December 15, 2005.
Retrospective application for interim financial information is permitted but is
not required. The Company has not determined the impact on its financial
position or results of operations that may result from the application of FIN
47.

      In December 2004, the FASB issued FASB Staff Position No. FAS 109-1,
"Application of FASB Statement No. 109, "Accounting for Income Taxes," to the
Tax Deduction on Qualified Production Activities Provided by the American Jobs
Creation Act of 2004" ("FSP FAS 109-1"). The American Jobs Creation Act
introduces a special 9% tax deduction on qualified production activities. FSP
FAS 109-1 clarifies that this tax deduction should be accounted for as a special
tax deduction in accordance with FASB Statement No. 109. The Company does not
expect the adoption of this new tax provision to have a material impact on its
consolidated financial position, results of operations or cash flows.

                                      26
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Introduction. CITGO has exposure to price fluctuations of crude oil and
refined products as well as fluctuations in interest rates. Management has
defined certain benchmarks consistent with its preferred risk profile for the
environment in which the Company operates and finances its assets. CITGO does
not attempt to manage the price risk related to all of its inventories of crude
oil and refined products. As a result, at June 30, 2005, CITGO was exposed to
the risk of broad market price declines with respect to a substantial portion of
its crude oil and refined product inventories. As of June 30, 2005, CITGO's
total crude and refined products inventory was 53 million barrels. Aggregate
commodity derivative positions entered into for price risk management purposes
at that date totaled 3.7 million barrels. The following disclosures do not
attempt to quantify the price risk associated with such commodity inventories.

      Commodity Instruments. CITGO balances its crude oil and petroleum product
supply/demand and from time to time enters into petroleum commodity derivative
contracts. Effective January 1, 2001, the Company's policy is to elect hedge
accounting only under limited circumstances involving derivatives, with initial
terms of 90 days or greater and notional amounts of $25 million or greater. At
June 30, 2005, none of the Company's commodity derivatives were accounted for as
hedges.

                                      27
<PAGE>

                             COMMODITY DERIVATIVES
                         OPEN POSITIONS AT JUNE 30, 2005

<TABLE>
<CAPTION>
                                                                 MATURITY   NUMBER OF     CONTRT     MARKET
    COMMODITY                          DERIVATIVE                  DATE     CONTRACTS      VALUE    VALUE(3)
    ---------                          ----------                --------   ---------    --------   --------
                                                                           Long/(Short)   Asset/(Liability)
                                                                           ------------  -------------------
                                                                                           ($ in millions)
<S>                   <C>                                        <C>       <C>           <C>        <C>
No Lead Gasoline (1)  Futures Purchased                            2005         150      $   10.2   $    9.9
                      Futures Sold                                 2005        (140)     $   (9.5)  $   (9.2)
                      OTC Swaps (Pay Fixed / Receive Float) (4)    2005         100      $      -   $    0.5
                      OTC Swaps (Pay Float / Receive Fixed) (4)    2005        (100)     $      -   $    0.3
                      Forward Purchase Contracts                   2005       3,318      $  143.7   $  134.1
                      Forward Sale Contracts                       2005      (2,074)     $ (108.4)  $ (103.6)

Distillates (1)       Futures Purchased                            2005       1,152      $   75.9   $   82.7
                      Futures Purchased                            2006       1,006      $   66.3   $   72.9
                      Futures Sold                                 2005        (141)     $   (9.8)  $   (9.8)
                      Futures Sold                                 2006        (205)     $  (14.6)  $  (15.1)
                      OTC Swaps (Pay Fixed / Receive Float) (4)    2005         149      $      -   $    1.5
                      OTC Swaps (Pay Float / Receive Fixed) (4)    2005         (21)     $      -   $   (0.5)
                      Forward Purchase Contracts                   2005       1,166      $   61.8   $   60.0
                      Forward Sale Contracts                       2005      (2,839)     $ (157.4)  $ (160.5)
                      Forward Sale Contracts                       2006      (1,007)     $  (68.4)  $  (73.7)

Crude Oil (1)         Futures Purchased                            2005       1,195      $   70.9   $   69.3
                      Futures Purchased                            2006         460      $   27.3   $   27.2
                      Futures Sold                                 2005      (1,430)     $  (84.8)  $  (83.1)
                      Futures Sold                                 2006        (240)     $  (14.4)  $  (14.0)
                      Listed Call Options Purchased                2006         330      $      -   $    0.6
                      Listed Call Options Sold                     2005         (95)     $      -   $   (0.2)
                      Listed Put Options Purchased                 2005         100      $      -   $    0.1
                      Listed Put Options Sold                      2005        (100)     $      -   $   (0.6)
                      Forward Purchase Contracts                   2005       5,044      $   95.9   $   97.8
                      Forward Sale Contracts                       2005      (2,099)     $ (104.2)  $ (106.8)

Natural Gas (2)       Futures Purchased                            2005          32      $    2.4   $    2.3
                      Futures Purchased                            2006          19      $    1.4   $    1.4
                      Futures Sold                                 2005         (36)     $   (2.8)  $   (2.8)
                      Futures Sold                                 2006          (4)     $   (0.3)  $   (0.3)
</TABLE>

------------------
(1)   Thousands of barrels

(2)   Ten-thousands of mmbtu

(3)   Based on actively quoted prices.

(4)   Floating price based on market index designated in contract; fixed price
      agreed upon at date of contract.

                                      28
<PAGE>

                             COMMODITY DERIVATIVES
                         OPEN POSITIONS AT JUNE 30, 2004

<TABLE>
<CAPTION>
                                                     MATURITY   NUMBER OF     CONTRT     MARKET
    COMMODITY                  DERIVATIVE              DATE     CONTRACTS      VALUE    VALUE(3)
    ---------                  ----------            --------   ---------    --------   --------
                                                               Long/(Short)   Asset/(Liability)
                                                               ------------  -------------------
                                                                               ($ in millions)
<S>                   <C>                            <C>       <C>           <C>        <C>
No Lead Gasoline (1)  Futures Purchased                2004          240     $   12.0   $   11.8
                      Futures Sold                     2004         (140)    $   (6.7)  $   (6.9)
                      Listed Put Options Sold          2004         (950)    $      -   $   (2.2)
                      Forward Purchase Contracts       2004        5,963     $  291.7   $  287.8
                      Forward Sale Contracts           2004       (3,674)    $ (178.2)  $ (177.6)

Distillates (1)       Futures Purchased                2004          677     $   27.1   $   29.4
                      Futures Purchased                2005          417     $   16.8   $   17.6
                      Futures Sold                     2004         (206)    $   (8.8)  $   (8.9)
                      Forward Purchase Contracts       2004          964     $   40.2   $   40.6
                      Forward Sale Contracts           2004       (1,652)    $  (87.9)  $  (89.7)
                      Forward Sale Contracts           2005         (419)    $  (17.7)  $  (18.0)

Crude Oil (1)         Futures Purchased                2004          325     $   12.2   $   12.0
                      Futures Sold                     2004         (585)    $  (21.5)  $  (21.7)
                      Forward Purchase Contracts       2004          549     $   19.8   $   19.0
                      Forward Sale Contracts           2004         (496)    $  (18.0)  $  (17.1)

Natural Gas (2)       Futures Purchased                2004           10     $    0.7   $    0.6
                      Futures Sold                     2004          (10)    $   (0.6)  $   (0.6)
                      Listed Call Options Purchased    2004          100     $      -   $    0.1
                      Listed Put Options Sold          2004         (250)    $      -   $   (0.1)
</TABLE>

------------------
(1)   Thousands of barrels

(2)   Ten-thousands of mmbtu

(3)   Based on actively quoted prices.

                                      29
<PAGE>

      Debt Related Instruments. We have fixed and floating U.S. currency
denominated debt. At June 30, 2005, our primary exposures were to LIBOR and
floating rates on tax exempt bonds. We manage the risk related to interest rates
by using both fixed and floating rates.

      For interest rate swaps, all of which expired in February 2005, the table
below presents notional amounts and interest rates by expected (contractual)
maturity dates. Notional amounts are used to calculate the contractual payments
to be exchanged under the contracts.

                           INTEREST RATE DERIVATIVES
                         OPEN POSITIONS AT JUNE 30, 2004

<TABLE>
<CAPTION>
                                                   NOTIONAL
                       EXPIRATION    FIXED RATE    PRINCIPAL
VARIABLE RATE INDEX       DATE          PAID        AMOUNT
--------------------  -------------  ----------    ---------
                                                 ($ in millions)
<S>                   <C>            <C>         <C>
    J.J. Kenny        February 2005     5.30%      $     12
    J.J. Kenny        February 2005     5.27%            15
    J.J. Kenny        February 2005     5.49%            15
                                                   --------
                                                   $     42
                                                   ========
</TABLE>

      Changes in the fair value of these agreements were recorded in other
income (expense) in the second quarter of 2004 with the offset recorded in the
balance sheet caption other current liabilities at June 30, 2004. There were no
interest rate swap agreements in place at June 30, 2005.

                                      30
<PAGE>
\
      For debt obligations, the table below presents principal cash flows and
related weighted average interest rates by expected maturity dates. Weighted
average variable rates are based on implied forward rates in the yield curve at
the reporting date.

                                DEBT OBLIGATIONS
                                AT JUNE 30, 2005

<TABLE>
<CAPTION>
                                                                          EXPECTED
                          FIXED       AVERAGE FIXED     VARIABLE      AVERAGE VARIABLE
EXPECTED MATURITIES     RATE DEBT     INTEREST RATE     RATE DEBT      INTEREST RATE
-------------------     ---------     -------------     ---------     ----------------
                     ($ in millions)                 ($ in millions)
<S>                  <C>              <C>            <C>              <C>
       2005             $      11         9.30%         $      83          4.90%
       2006                   201         8.10%                 -             -
       2007                    50         8.94%                12          5.46%
       2008                    25         7.17%                20          5.60%
       2009                    50         7.22%                 -             -
    Thereafter                403         6.77%               360          6.61%
                        ---------         ----          ---------          ----
       Total            $     740         7.36%         $     475          6.24%
                        =========         ====          =========          ====

    Fair Value          $     749                       $     475
                        =========                       =========
</TABLE>

                                DEBT OBLIGATIONS
                                AT JUNE 30, 2004

<TABLE>
<CAPTION>
                                                                          EXPECTED
                          FIXED       AVERAGE FIXED     VARIABLE      AVERAGE VARIABLE
EXPECTED MATURITIES     RATE DEBT     INTEREST RATE     RATE DEBT      INTEREST RATE
-------------------     ---------     -------------     ---------     ----------------
                     ($ in millions)                 ($ in millions)
<S>                  <C>              <C>            <C>              <C>
       2004             $      11         9.30%         $       -             -
       2005                    11         9.30%                 -             -
       2006                   201         8.10%                 -             -
       2007                    50         8.94%                12          5.61%
       2008                    25         7.17%                20          6.00%
    Thereafter                745        10.40%               190          7.52%
                        ---------        -----          ---------          ----
      Total             $   1,043         9.79%         $     222          7.28%
                        =========        =====          =========          ====

    Fair Value          $   1,226                       $     222
                        =========                       =========
</TABLE>

                                      31
<PAGE>

ITEM 4. CONTROLS AND PROCEDURES

      During the second quarter of 2005, the Company's management, including the
principal executive officer and principal financial officer, evaluated the
Company's disclosure controls and procedures related to the recording,
processing, summarization and reporting of information in the Company's periodic
reports that it files with the Securities and Exchange Commission ("SEC"). These
disclosure controls and procedures have been designed to ensure that (a)
material information relating to the Company, including its consolidated
subsidiaries, is made known to the Company's management, including these
officers, by other employees of the Company and its subsidiaries as appropriate
to allow timely decisions regarding required disclosure, and (b) this
information is recorded, processed, summarized, evaluated and reported, as
applicable, within the time periods specified in the SEC's rules and forms. Due
to the inherent limitations of control systems, not all misstatements may be
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. Also, the Company does not control or manage certain of
its unconsolidated entities and thus its access and ability to apply its
disclosure controls and procedures to entities that it does not control or
manage are more limited than is the case for the subsidiaries it controls and
manages.

      Accordingly, as of June 30, 2005, these officers (principal executive
officer and principal financial officer) concluded that the Company's disclosure
controls and procedures were effective to accomplish their objectives.

      There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation.

                                      32
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

      The required information is incorporated by reference into Part II of this
Report from the information under the subheadings "Litigation and Injury Claims"
and "Environmental Compliance and Remediation" in Note 8 of the Notes to the
Condensed Consolidated Financial Statements included in Part I of this Report.

ITEM 6. EXHIBITS

(a)   Exhibits

      Certifications Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities
      Exchange Act of 1934 as to the Quarterly Report on Form 10-Q for the
      quarterly period ended June 30, 2005 filed by the following officers:

      31.1   Filed by Felix Rodriguez, President and Chief Executive Officer.

      31.2   Filed by Larry E. Krieg, Vice President Finance and Chief Financial
             Officer.

      Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 United
      States Code as to the Quarterly Report on Form 10-Q for the quarterly
      period ended June 30, 2005 filed by the following officers:

      32.1   Filed by Felix Rodriguez, President and Chief Executive Officer.

      32.2   Filed by Larry E. Krieg, Vice President Finance and Chief Financial
             Officer.

                                      33
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                          CITGO PETROLEUM CORPORATION

Date: August 11, 2005                      /s/ Paul Largess
                                           -------------------------
                                               Paul Largess
                                           Controller, Chief Accounting Officer

                                      34
<PAGE>

                                 EXHIBIT INDEX

      Certifications Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities
      Exchange Act of 1934 as to the Quarterly Report on Form 10-Q for the
      quarterly period ended June 30, 2005 filed by the following officers:

      31.1   Filed by Felix Rodriguez, President and Chief Executive Officer.

      31.2   Filed by Larry E. Krieg, Vice President Finance and Chief Financial
             Officer.

      Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 United
      States Code as to the Quarterly Report on Form 10-Q for the quarterly
      period ended June 30, 2005 filed by the following officers:

      32.1   Filed by Felix Rodriguez, President and Chief Executive Officer.

      32.2   Filed by Larry E. Krieg, Vice President Finance and Chief Financial
             Officer.