<PAGE>   1
                       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, 1999

                                       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)

         ONE WARREN PLACE, 6100 SOUTH YALE AVENUE, TULSA, OKLAHOMA 74136
         ---------------------------------------------------------------
         (Address of principal executive office)              (Zip Code)

                                 (918) 495-4000
                                 --------------
              (Registrant's telephone number, including area code)


                                      N. A.
        ----------------------------------------------------------------
        (Former name, former address and former fiscal year, 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.


         Common Stock, $1.00 par value                        1,000
         -----------------------------                        -----
                   (Class)                       (outstanding at July 31, 1999)
<PAGE>   2



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, 1999

TABLE OF CONTENTS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

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

PART I.    FINANCIAL INFORMATION

   Item 1. Financial Statements (Unaudited)

           Condensed Consolidated Balance Sheets - June 30, 1999 and December 31, 1998..............2

           Condensed Consolidated Statements of Income - Three-Month and Six-Month
           Periods Ended June 30, 1999 and 1998.....................................................3

           Condensed Consolidated Statement of Shareholder's Equity - Six-Month Period
           Ended June 30, 1999......................................................................4

           Condensed Consolidated Statements of Cash Flows - Six-Month Periods Ended
           June 30, 1999 and 1998...................................................................5

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

   Item 2. Management's Discussion and Analysis of Financial Condition and
           Results of Operations...................................................................11

   Item 3. Quantitative and Qualitative Disclosures About Market Risk..............................17

PART II.   OTHER INFORMATION

   Item 1. Legal Proceedings.......................................................................19

   Item 5. Other Information.......................................................................21

   Item 6. Exhibits and Reports on Form 8-K........................................................21

SIGNATURES.........................................................................................22
</TABLE>



<PAGE>   3


                  FACTORS AFFECTING FORWARD LOOKING STATEMENTS


         This Quarterly Report on Form 10-Q contains certain "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Specifically, all statements under the caption "Item 2 - Management's Discussion
and Analysis of Financial Condition and Results of Operations" relating to Year
2000 matters, capital expenditures and investments related to environmental
compliance and strategic planning, purchasing patterns of refined products and
capital resources available to the Company (as defined herein) are forward
looking statements. In addition, when used in this document, the words
"anticipate," "estimate," "prospect" and similar expressions are used to
identify forward-looking statements. Such statements are subject to certain
risks and uncertainties, such as increased inflation, continued access to
capital markets and commercial bank financing on favorable terms, increases in
regulatory burdens, changes in prices or demand for the Company's products as a
result of competitive actions or economic factors and changes in the cost of
crude oil, feedstocks, blending components or refined products. Such statements
are also subject to the risks of increased costs in related technologies and
such technologies producing anticipated results. Should one or more of these
risks or uncertainties, among others, materialize, actual results may vary
materially from those estimated, anticipated or projected. Although CITGO
believes that the expectations reflected by such forward looking statements are
reasonable based on information currently available to the Company, no
assurances can be given that such expectations will prove to have been correct.


<PAGE>   4

                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)


CITGO PETROLEUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                           JUNE 30,        DECEMBER 31,
                                                                                            1999               1998
                                                                                         (UNAUDITED)
                                                                                         ------------------------------
<S>                                                                                      <C>                 <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents                                                                $   31,650          $   30,338
Accounts receivable - net                                                                   764,109             540,501
Due from affiliates                                                                          43,974              33,780
Inventories                                                                                 938,203             719,625
Deferred income taxes                                                                         4,349              65,234
Prepaid expenses and other                                                                   16,724              18,317
                                                                                         ----------          ----------
Total current assets                                                                      1,799,009           1,407,795

PROPERTY, PLANT AND EQUIPMENT - net                                                       2,872,845           2,860,427

RESTRICTED CASH                                                                               9,690               9,436

INVESTMENTS IN AFFILIATES                                                                   746,832             781,481

OTHER ASSETS                                                                                207,220             195,113
                                                                                         ----------          ----------
                                                                                         $5,635,596          $5,254,252
                                                                                         ==========          ==========

LIABILITIES AND SHAREHOLDER'S EQUITY

CURRENT LIABILITIES:
Short-term bank loans                                                                    $  134,000          $   37,000
Accounts payable                                                                            606,223             384,532
Payables to affiliates                                                                      237,382             141,607
Taxes other than income                                                                     217,350             219,642
Other                                                                                       157,625             209,327
Current portion of long-term debt                                                            47,078              47,078
Current portion of capital lease obligation                                                  15,484              14,660
                                                                                         ----------          ----------
Total current liabilities                                                                 1,415,142           1,053,846

LONG-TERM DEBT                                                                            1,190,713           1,259,270

CAPITAL LEASE OBLIGATION                                                                     93,972             101,926

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS                                                 208,001             200,281

OTHER NONCURRENT LIABILITIES                                                                208,688             219,466

DEFERRED INCOME TAXES                                                                       546,575             543,464

MINORITY INTEREST                                                                            29,953              29,559

COMMITMENTS AND CONTINGENCIES

SHAREHOLDER'S EQUITY:
Common stock - $1.00 par value, 1,000 shares authorized, issued and outstanding                   1                   1
Additional capital                                                                        1,312,616           1,312,616
Retained earnings                                                                           629,935             533,823
                                                                                         ----------          ----------
Total shareholder's equity                                                                1,942,552           1,846,440
                                                                                         ----------          ----------
                                                                                         $5,635,596          $5,254,252
                                                                                         ==========          ==========
</TABLE>


See notes to condensed consolidated financial statements.


                                        2



<PAGE>   5

CITGO PETROLEUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                         THREE MONTHS                           SIX MONTHS
                                                                         ENDED JUNE 30,                       ENDED JUNE 30,
                                                                         --------------                       --------------
                                                                   1999              1998             1999                  1998
                                                               -----------        -----------      -----------        -----------
<S>                                                            <C>                <C>              <C>                <C>
REVENUES:
  Net sales                                                    $ 3,112,862        $ 2,904,609      $ 5,342,678        $ 5,595,179
  Sales to affiliates                                               40,376             31,280           67,026             82,404
                                                               -----------        -----------      -----------        -----------
                                                                 3,153,238          2,935,889        5,409,704          5,677,583
  Equity in earnings (losses) of affiliates                        (12,824)            12,722           (3,219)            37,610
  Other income (expense) - net                                      (1,524)            (1,825)          (3,914)              (174)
                                                               -----------        -----------      -----------        -----------
                                                                 3,138,890          2,946,786        5,402,571          5,715,019

COST OF SALES AND EXPENSES:
  Cost of sales and operating expenses (including purchases
    of $1,331,092, $1,123,201, $2,278,591 and $2,232,934
    from affiliates)                                             3,037,583          2,773,602        5,086,195          5,328,749
  Selling, general and administrative expenses                      56,343             57,886          110,504            114,280
  Interest expense, excluding capital lease                         20,184             21,597           40,545             42,308
  Capital lease interest charge                                      3,279              3,648            6,558              7,297
  Minority interest                                                    (19)               402              394                360
                                                               -----------        -----------      -----------        -----------
                                                                 3,117,370          2,857,135        5,244,196          5,492,994
                                                               -----------        -----------      -----------        -----------


INCOME BEFORE INCOME TAXES                                          21,520             89,651          158,375            222,025

INCOME TAXES                                                        (3,373)            33,171           47,263             82,149
                                                               -----------        -----------      -----------        -----------
NET INCOME                                                     $    24,893        $    56,480      $   111,112        $   139,876
                                                               ===========        ===========      ===========        ===========
</TABLE>

See notes to condensed consolidated financial statements.



                                        3
<PAGE>   6


CITGO PETROLEUM CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (UNAUDITED)
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>


                                      COMMON STOCK             ADDITIONAL            RETAINED
                                 SHARES          AMOUNT          CAPITAL             EARNINGS               TOTAL
                                 ------          ------          -------             --------               -----
<S>                              <C>           <C>             <C>                 <C>                   <C>
BALANCE, DECEMBER 31, 1998          1          $       1       $ 1,312,616         $   533,823           $ 1,846,440

Net Income                         --                 --                --             111,112               111,112

Dividend to Parent                 --                 --                --             (15,000)              (15,000)
                                 ------        ---------       -----------         -----------           -----------
BALANCE, JUNE 30, 1999              1          $       1       $ 1,312,616         $   629,935           $ 1,942,552
                                 ======        =========       ===========         ===========           ===========
</TABLE>



See notes to condensed consolidated financial statements.



                                       4



<PAGE>   7



CITGO PETROLEUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                        SIX MONTHS
                                                                       ENDED JUNE 30,
                                                                       --------------
                                                                     1999        1998
                                                                  ---------    ---------
<S>                                                               <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES                              $ 124,761    $ 202,255
                                                                  ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                             (110,770)    (100,292)
  Proceeds from sales of property, plant and equipment                  973        1,445
  (Increase) decrease in restricted cash                               (254)       5,926
  Loans to LYONDELL-CITGO Refining LP                               (17,000)      (7,000)
  Proceeds from sale of Petro-Chemical Transport                         --        7,160
  Investments in and advances to other affiliates                    (2,712)      (2,555)
                                                                  ---------    ---------
            Net cash used in investing activities                  (129,763)     (95,316)
                                                                  ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from short-term bank loans                            97,000       22,000
  Net repayments of revolving bank loans                            (65,000)     (15,000)
  Payments on term bank loans                                            --      (14,705)
  Proceeds from issuance of tax-exempt bonds                         25,000       25,000
  Payments on taxable bonds                                         (25,000)          --
  Dividends paid to Parent (PDV America)                            (15,000)    (110,000)
  Payments of capital lease obligations                              (7,130)      (6,390)
  Repayments of other debt                                           (3,556)      (3,556)
                                                                  ---------    ---------
            Net cash provided by (used in) financing activities       6,314     (102,651)
                                                                  ---------    ---------

INCREASE IN CASH AND CASH EQUIVALENTS                                 1,312        4,288

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                       30,338       24,363
                                                                  ---------    ---------

CASH AND CASH EQUIVALENTS, END OF PERIOD                          $  31,650    $  28,651
                                                                  =========    =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid (received) during the period for:
        Interest, net of amounts capitalized                      $  47,837    $  50,001
                                                                  =========    =========
        Income taxes, net of refund of $30,000 in 1999            $ (28,080)   $  43,083
                                                                  =========    =========
</TABLE>


See notes to condensed consolidated financial statements.


                                        5


<PAGE>   8


CITGO PETROLEUM CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------


1.       BASIS OF PRESENTATION

         The financial information for CITGO Petroleum Corporation ("CITGO" or
         "the Company") subsequent to December 31, 1998 and with respect to the
         interim three-month and six-month periods ended June 30, 1999 and 1998
         is unaudited. In the opinion of management, such interim information
         contains all adjustments, consisting only of normal recurring
         adjustments with the exception of the tax matter described in Footnote
         5, necessary for a fair presentation of the results of such periods.
         The results of operations for the three-month and six-month periods
         ended June 30, 1999 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, 1998 on Form 10-K, dated March
         17, 1999, for additional information.

         The condensed consolidated financial statements include the accounts of
         CITGO, its wholly owned subsidiaries, and Cit-Con Oil Corporation,
         which is 65 percent owned by CITGO (collectively, "the Company").

2.       INVENTORIES

         Inventories, primarily at LIFO, consist of the following:


<TABLE>
<CAPTION>

                                        JUNE 30,             DECEMBER 31,
                                          1999                   1998
                                      (UNAUDITED)
                                      -----------            ------------
                                               (000's omitted)
<S>                                    <C>                    <C>
            Refined products           $ 717,610              $ 539,675
            Crude oil                    163,582                123,927
            Materials and supplies        57,011                 56,023
                                       ---------              ---------
                                       $ 938,203              $ 719,625
                                       =========              =========
</TABLE>


         Inventories at December 31, 1998 were carried at estimated net market
         value which was $159 million lower than historical cost. At June 30,
         1999 estimated net market values exceeded historical cost, and
         accordingly, no write-down was necessary.


                                        6

<PAGE>   9


3.       LONG-TERM DEBT


<TABLE>
<CAPTION>

                                                           JUNE 30,       DECEMBER 31,
                                                             1999             1998
                                                          (UNAUDITED)
                                                          ---------------------------
                                                                (000'S OMITTED)
<S>                                                       <C>            <C>
Revolving bank loans                                      $   100,000    $   165,000

7.875% Senior Notes, $200 million face amount, due 2006       199,791        199,776

Private Placement Senior Notes, due from 1999 to 2006
with interest rates from 9.03% to 9.30%                       176,623        176,623

Master Shelf Agreement Senior Notes, due from 2002 to
2009 with interest rates from 7.17% to 8.94%                  260,000        260,000

Tax Exempt Bonds, due from 2004 to 2029 with variable
interest rates                                                300,520        275,520

Taxable Bonds, due 2026 to 2028 with variable
interest rates                                                183,000        208,000

Cit-Con bank credit agreement                                  17,857         21,429
                                                          -----------    -----------
                                                            1,237,791      1,306,348
Current portion of long-term debt                             (47,078)       (47,078)
                                                          -----------    -----------
                                                          $ 1,190,713    $ 1,259,270
                                                          ===========    ===========
</TABLE>

         On April 15, 1999, CITGO issued $25 million of tax exempt revenue bonds
         due 2029. The proceeds were used to redeem $25 million of the taxable
         Gulf Coast environmental facilities revenue bonds due 2028.

4.       COMMITMENTS AND CONTINGENCIES

         LITIGATION AND INJURY CLAIMS - Various lawsuits and claims arising in
         the ordinary course of business are pending against the Company. The
         Company 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 the
         Company, and in amounts greater than the Company's accruals, then such
         determinations could have a material adverse effect on the Company's
         results of operations in a given reporting period. However, in
         management's opinion the ultimate resolution of these lawsuits and
         claims will not exceed, by a material amount, the amount of the
         accruals and the insurance coverage available to the Company. This
         opinion is based upon management's and counsel's current assessment of
         these lawsuits and claims. The most significant lawsuits and claims are
         discussed below.

         In May 1997, an explosion and fire occurred at CITGO's Corpus Christi
         refinery. No serious personal injuries were reported. CITGO received
         approximately 7,500 individual claims for personal injury and property
         damage related to the above noted incident. Approximately 1,300 of
         these claims have been resolved for amounts which individually and
         collectively were not material. There are presently seventeen lawsuits
         filed on behalf of approximately 9,000 individuals arising out of this
         incident pending against CITGO in federal and state courts in Corpus
         Christi alleging property damages, personal injury and punitive
         damages. A trial of one of the federal court lawsuits in October 1998
         involving ten bellwether plaintiffs, out of approximately 400
         plaintiffs,


                                        7

<PAGE>   10


         resulted in a verdict for CITGO. The remaining plaintiffs in this case
         have agreed to settle for an immaterial amount.

         A class action lawsuit is pending in Corpus Christi, Texas state court
         against CITGO and other operators and owners of nearby industrial
         facilities which claims damages for reduced value of residential
         properties located in the vicinity of the industrial facilities as a
         result of air, soil and groundwater contamination. Trial is scheduled
         for January 2000. CITGO has contracted to purchase approximately 267
         properties that were included in the lawsuit and are in a neighborhood
         adjacent to CITGO's Corpus Christi refinery and settle the property
         damage claims relating to these properties. CITGO has offers open to
         purchase the remaining eight properties in the neighborhood. Related to
         this purchase, $15.7 million was expensed in 1997. Two related personal
         injury and wrongful death lawsuits were filed against the same
         defendants in 1996, one of which is scheduled for trial in 2000; a
         trial date for the other case has not been set.

         Litigation is pending in federal court in Lake Charles, Louisiana,
         against CITGO by a number of current and former Lake Charles refinery
         employees and applicants asserting claims of racial discrimination in
         connection with CITGO's employment practices. Trials in this case are
         set to begin in the fall of 1999.

         CITGO is among defendants to lawsuits in California and North Carolina
         alleging contamination of water supplies by methyl tertiary butyl ether
         ("MTBE"), a component of gasoline. The action in California was filed
         in November 1998 by the South Tahoe Public Utility District and CITGO
         was added as a defendant in February 1999. The North Carolina case,
         filed in January 1999, is a putative class action on behalf of owners
         of water wells and other drinking water supplies in the state. Both
         actions allege that MTBE poses public health risks. Both actions seek
         damages as well as remediation of the alleged contamination. These
         matters are in early stages and there has been no discovery conducted
         against CITGO. CITGO has denied all of the allegations and is pursuing
         its defenses.

         ENVIRONMENTAL COMPLIANCE AND REMEDIATION - CITGO is subject to various
         federal, state and local environmental laws and regulations which may
         require CITGO to take action to correct or improve the effects on the
         environment of prior disposal or release of petroleum substances by
         CITGO or other parties. Management believes the Company is in
         compliance with these laws and regulations in all material aspects.
         Maintaining compliance with environmental laws and regulations in the
         future could require significant capital expenditures and additional
         operating costs.

         CITGO's accounting policy establishes environmental reserves as
         probable site restoration and remediation obligations become reasonably
         capable of estimation. Based on currently available information,
         including the continuing participation of former owners in remediation
         actions and indemnification agreements with third parties, CITGO
         believes that its accruals are sufficient to address its environmental
         clean-up obligations.

         In July 1997, the Texas Natural Resources Conservation Commission
         ("TNRCC") issued a Preliminary Report and Petition alleging that CITGO
         violated TNRCC rules relating to operation of a hazardous waste
         management unit without a permit and recommended a penalty of $699,200.
         The TNRCC later expanded the alleged violations to include alleged
         unauthorized emissions to the atmosphere and alleged unauthorized
         discharges to waters of the state. CITGO has settled all of these
         matters by entering into an Agreed Order with the TNRCC, which required
         the payment of a


                                        8

<PAGE>   11


         penalty of $325,000, implementation of an approved Supplemental
         Environmental Project at a cost of $325,000 and compliance with terms
         and conditions of the order.

         In June 1999, CITGO Petroleum Corporation and numerous other industrial
         companies received notice from the U.S. Environmental Protection
         Agency, Region VI, ("EPA") that the EPA believes these companies have
         contributed to contamination in the Calcasieu Estuary, in the proximity
         of Lake Charles, Calcasieu Parish, Louisiana and are Potentially
         Responsible Parties ("PRPs") under the Comprehensive Environmental
         Response, Compensation, and Liability Act ("CERCLA"). The EPA made a
         demand for payment of its past investigation costs from CITGO and other
         PRPs and advised it intends to conduct a Remedial
         Investigation/Feasibility Study ("RI/FS") under its CERCLA authority.
         CITGO and other PRP's may be potentially responsible for the costs of
         the RI/FS. CITGO disagrees with the EPA's allegations and intends to
         contest this matter. CITGO does not believe its potential exposure in
         this matter is material.

         Conditions which require additional expenditures may exist with respect
         to various Company sites including, but not limited to, CITGO's
         operating refinery complexes, closed refineries, service station sites
         and crude oil and petroleum product storage terminals. The amount of
         such future expenditures, if any, is indeterminable.

         DERIVATIVE COMMODITY AND FINANCIAL INSTRUMENTS - CITGO enters into
         petroleum futures contracts, options and other over-the-counter
         commodity derivatives, primarily to reduce its inventory exposure to
         market risk. Such contracts are generally entered into through major
         brokerage houses and traded on national exchanges and can be settled in
         cash or through delivery of the commodity. Such contracts generally
         qualify for hedge accounting and correlate to market price movements of
         crude oil and refined products. Resulting gains and losses on such
         contracts, therefore, will generally be offset by gains and losses on
         CITGO's hedged inventory or future purchases and sales. In the
         six-month period ended June 30, 1999, there was no non-hedging
         activity.

         CITGO has only limited involvement with other derivative financial
         instruments and does not currently use them for trading purposes. CITGO
         has entered into various interest rate swap and cap agreements to
         manage its risk related to interest rate changes on its debt. The fair
         value of the interest rate swap agreements in place at June 30, 1999,
         based on the estimated amount that CITGO would receive or pay to
         terminate the agreements as of that date and taking into account
         current interest rates, was an unrealized loss of $2.4 million. In
         connection with the determination of fair market value, the Company
         considers the creditworthiness of the counterparties, but no adjustment
         was determined to be necessary as a result.

         The impact of these instruments on cost of sales and operating expenses
         and pretax earnings was immaterial for all periods presented.
         Management considers the market risk to the Company related to these
         instruments to be insignificant during the periods presented.

5.       INCOME TAXES

         The effective tax rate for the current year is unusually low due to a
         favorable resolution in the second quarter of 1999 of a significant tax
         issue in the last IRS audit. During the years under audit, deferred
         taxes were recorded for certain environmental expenses deducted in the
         tax returns in the event the deductions were denied on audit. The
         deductions were allowed on audit and, accordingly, the deferred tax
         liability of approximately $11 million was reversed with a
         corresponding benefit to tax expense.


                                        9

<PAGE>   12


6.       RELATED PARTY TRANSACTIONS

         As of February 1, 1999, PDVSA Petroleo y Gas, S. A. reduced deliveries
         of crude oil to CITGO by approximately 15 percent under the force
         majeure clauses of its two long-term crude oil supply contracts related
         to CITGO's fuels refineries. Effective May 1, 1999, the reduction
         percentage increased to approximately 20 percent related to those
         contracts. With respect to the two long-term crude oil supply contracts
         related to CITGO's asphalt refineries, there were no reductions in
         deliveries during the first quarter of 1999, but during the second
         quarter 1999, PDVSA Petroleo y Gas, S.A. reduced deliveries to CITGO by
         approximately 40 percent. The Company has been required to obtain
         alternative sources of crude oil supply in replacement. As a result,
         CITGO estimates that the cost of crude oil purchased in the three
         months and six months ended June 30, 1999 increased by $13 million and
         $17 million, respectively, from what would have otherwise been the
         case. Due to the complexity of the factors affecting crude oil and
         refined product prices, it is not possible to forecast future financial
         impacts of these reduced deliveries of crude oil on CITGO crude oil
         costs. Additionally, it is not possible to forecast the duration of the
         force majeure at this time.

         In April 1999, the Company declared and paid a $15 million dividend.


                                       10



<PAGE>   13


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

OVERVIEW

         The following discussion of the financial condition and results of
operations of CITGO should be read in conjunction with the unaudited condensed
consolidated financial statements of CITGO included elsewhere herein. Reference
is made to CITGO's Annual Report for the fiscal year ended December 31, 1998 on
Form 10-K, dated March 17, 1999, for additional information and a description of
factors which may cause substantial fluctuations in the earnings and cash flows
of CITGO.

         In the quarter ended June 30, 1999, CITGO generated net income of $24.9
million on revenue of $3.1 billion compared to net income of $56.5 million on
revenue of $2.9 billion for the same period last year. In the six-month period
ended June 30, 1999, CITGO generated net income of $111.1 million on revenue of
$5.4 billion compared to net income of $139.9 million on revenue of $5.7 billion
for the same period last year. Gross margin for the first six months of 1999
benefited from the sale of inventories that were written down by $159 million at
December 31, 1998, to reflect market prices at that time. At June 30, 1999,
estimated net market value of inventories exceeded historical cost and,
accordingly, no write down of inventories was required. (See "Gross margin").

         In June 1999, a group of U.S. independent oil producers filed petitions
under the U.S. antidumping and countervailing duty laws against imports of crude
oil from Venezuela, Iraq, Mexico and Saudi Arabia. (See PART II, Item 5. Other
Information)

RESULTS OF OPERATIONS

         The following table summarizes the sources of CITGO's sales revenues
and sales volumes for the three-month and six-month periods ended June 30, 1999
and 1998:


                        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,
                                          --------------    --------------    --------------    --------------
                                          1999     1998     1999     1998      1999    1998     1999    1998
                                         ------   ------   ------   ------    ------   -----   ------   ------
                                         ($ in millions)   ($ in millions)     (MM gallons)     (MM gallons)
<S>                                      <C>      <C>      <C>      <C>       <C>      <C>      <C>     <C>
Gasoline                                 $1,878   $1,736   $3,134   $3,316    3,386    3,361    6,487    6,520

Jet fuel                                    238      210      429      414      535      456    1,071      884

Diesel/#2                                   560      500    1,012    1,024    1,293    1,212    2,602    2,370

Asphalt                                      93       87      119      110      227      228      297      280

Petrochemicals and industrial products      236      217      432      472      469      561    1,046    1,077

Lubricants and waxes                        122      117      241      225       75       60      143      115
                                         ------   ------   ------   ------    -----    -----   ------   ------
        Total refined product sales       3,127    2,867    5,367    5,561    5,985    5,878   11,646   11,246

Other sales                                  26       69       43      117
                                         ------   ------   ------   ------    -----    -----   ------   ------
        Total sales                      $3,153   $2,936   $5,410   $5,678    5,985    5,878   11,646   11,246
                                         ======   ======   ======   ======    =====    =====   ======   ======
</TABLE>






                                       11



<PAGE>   14


         The following table summarizes CITGO's cost of sales and operating
expenses for the three-month and six-month periods ended June 30, 1999 and 1998:

                   CITGO COST OF SALES AND OPERATING EXPENSES

<TABLE>
<CAPTION>

                                                             Three Months       Six Months
                                                            Ended June 30,    Ended June 30,
                                                            ---------------   ---------------
                                                             1999     1998     1999     1998
                                                            ------   ------   ------   ------
                                                            ($ in millions)   ($ in millions)
<S>                                                         <C>      <C>      <C>      <C>
Crude oil                                                   $  680   $  512   $1,123   $  994
Refined products                                             1,859    1,732    3,148    3,189
Intermediate feedstocks                                        183      219      305      462
Refining and manufacturing costs                               203      197      396      388
Other operating costs, expenses and inventory changes (1)      113      114      114      296
                                                            ------   ------   ------   ------
       Total cost of sales and operating expenses           $3,038   $2,774   $5,086   $5,329
                                                            ======   ======   ======   ======
</TABLE>

(1)      The six months ended June 30, 1999, includes the impact of the
         inventory write down of $159 million recorded at December 31, 1998.
         See "Gross Margin".

         Sales revenues and volumes. Sales increased $217 million, or
approximately 7%, in the three-month period ended June 30, 1999 as compared to
the same period in 1998. This was due to an increase in average sales price of
5% and an increase in sales volume of 2%. Sales decreased $268 million, or
approximately 5%, in the six-month period ended June 30, 1999 as compared to the
same period in 1998. This was due to a decrease in average sales price of 7%
partially offset by an increase in sales volume of 4%. (See CITGO Sales Revenues
and Volumes table above.)

         Equity in earnings of affiliates. Equity in earnings of affiliates
decreased by $25.5 million for the three-month period and decreased by $40.8
million for the six-month period as compared to the same period in 1998. The
decrease was primarily due to the change in the earnings of LYONDELL-CITGO
Refining LP ("LYONDELL-CITGO"), CITGO's share of which decreased $42 million,
from $28 million in the first six months of 1998 to $(14) million in the first
six months of 1999. This decrease was due primarily to a reduction of contract
crude supply, lower margins on crude oil purchased in the spot market and costs
and lower operating rates related to operating unit outages.

         Other income (expense). Other income (expense) was $(3.9) million for
the six-month period ended June 30, 1999 as compared to ($0.2) million for the
same period in 1998. The difference was primarily due to a $2.7 million gain on
the sale of Petro-Chemical Transport in the first six months of 1998.

         Cost of sales and operating expenses. Cost of sales and operating
expenses increased by $264 million or 10%, in the quarter ended June 30, 1999
and decreased $243 or 5% in the six-month period ended June 30, 1999 as compared
to the same period in 1998. As a result of the invocation of the force majeure
clause in its crude oil supply contracts, CITGO estimates that the cost of crude
oil purchased in the three months and six months ended June 30, 1999 increased
by $13 million and $17 million, respectively, from what would have otherwise
been the case. (See CITGO Cost of Sales and Operating Expenses table above.)

         CITGO purchases refined products to supplement the production from its
refineries to meet marketing demands and resolve logistical issues. Refined
product purchases represented 61% and 62% of total cost of sales and operating
expenses for the second quarters of 1999 and 1998, respectively, and 62% and 60%
for the first six months of 1999 and 1998, respectively. CITGO estimates that
margins on


                                       12

<PAGE>   15


purchased products, on average, are somewhat lower than margins on produced
products due to the fact that CITGO can only receive the marketing portion of
the total wholesale margin received on the produced refined products. However,
purchased products are not segregated from CITGO's produced products and margins
may vary due to market conditions and other factors beyond the Company's
control.

         Gross margin. The gross margin for the three-month period ended June
30, 1999 was $116 million, or 3.7%, compared to $162 million, or 5.5%, for the
same period in 1998. The gross margin for the six-month period ended June 30,
1999 was $324 million, or 6.0%, compared to $349 million, or 6.1%, for the same
period in 1998. In the three-month period ended June 30, 1999, the revenue per
gallon component increased approximately 5% while the cost per gallon component
increased approximately 7%. As a result, the gross margin decreased
approximately eight-tenths of one cent on a per gallon basis in the three-month
period ended June 30, 1999 compared to the same period in 1998. In the six-month
period ended June 30, 1999, the revenue per gallon component declined
approximately 8% and the cost per gallon component also declined approximately
8%. As a result, the gross margin decreased approximately three-tenths of one
cent on a per gallon basis in the six-month period ended June 30, 1999 compared
to the same period in 1998.

         Income taxes. Income taxes reported were based on an effective tax rate
of 29.8% for the six-month period ended June 30, 1999, as compared to 37% for
the comparable period in 1998. The effective tax rate for the current year is
unusually low due to a favorable resolution in the second quarter of 1999 of a
significant tax issue in the last IRS audit. During the years under audit,
deferred taxes were recorded for certain environmental expenses deducted in the
tax returns in the event the deductions were denied on audit. The deductions
were allowed on audit and, accordingly, the deferred tax liability of
approximately $11 million was reversed with a corresponding benefit to tax
expense.

LIQUIDITY AND CAPITAL RESOURCES

         For the six-month period ended June 30, 1999, the Company's
consolidated net cash provided by operating activities totaled approximately
$125 million. Operating cash flows were derived from net income of $111 million
and depreciation and amortization of $110 million reduced by changes in other
assets and liabilities of $96 million. The more significant changes in other
items included an increase in notes and accounts receivable (including amounts
due from affiliates) of $241 million and an increase in inventories of $219
million offset by an increase in current liabilities of $265 million, an
increase in deferred income taxes of $64 million and a decrease in affiliates
earnings of $40 million.

         Net cash used in investing activities totaled $127 million for the
six-month period ended June 30, 1999 consisting primarily of capital
expenditures of $111 million (compared to $100 million for the same period in
1998) and loans to LYONDELL-CITGO of $17 million.

         Net cash provided by financing activities totaled $6 million for the
six-month period ended June 30, 1999 consisting primarily of $97 million from
short term borrowings offset by net repayment on revolving bank loans of $65
million and a $15 million dividend to parent.

         As of June 30, 1999, capital resources available to the Company include
cash generated by operations, available borrowing capacity under CITGO's
committed bank facilities of $450 million and $51 million of uncommitted
short-term borrowing facilities with various banks. Additionally, the remaining


                                       13

<PAGE>   16


$400 million from CITGO's shelf registration with the Securities and Exchange
Commission for $600 million of debt securities may be offered and sold from time
to time. CITGO management believes that the Company has sufficient capital
resources to carry out planned capital spending programs, including regulatory
and environmental projects in the near term, and to meet currently anticipated
future obligations as they arise. CITGO periodically evaluates other sources of
capital in the marketplace and anticipates that long-term capital requirements
will be satisfied with current capital resources and future financing
arrangements, including the issuance of debt securities. The Company's ability
to obtain such financing will depend on numerous factors, including market
conditions and the perceived creditworthiness of the Company at that time.

         The Company is in compliance with its obligations under its debt
financing arrangements at June 30, 1999.

NEW ACCOUNTING STANDARD

         In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). The statement establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives, at fair value,
as either assets or liabilities in the statement of financial position with an
offset either to shareholder's equity and comprehensive income or income
depending upon the classification of the derivative. The company has not
determined the impact on its financial statements that may result from adoption
of SFAS No. 133, which is required no later than January 1, 2001.

YEAR 2000 READINESS

         General. The inability of computers, software and other equipment using
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000 issue. As the Year 2000
approaches, such systems may be unable to accurately process certain date-based
information.

         To mitigate any adverse impact this may cause, CITGO has established a
company wide Year 2000 Project ("Project") to address the issue of computer
programs and embedded computer chips which may be unable to correctly function
with the Year 2000. The Project is proceeding on schedule. In addition, CITGO is
updating major elements of its information systems by implementing programs
purchased from SAP. The first phase of SAP implementation, which included the
financial reporting and materials management modules, was brought into
production on January 1, 1998. Additional SAP modules including plant
maintenance work order and cost tracking were implemented throughout 1998. The
light oils product scheduling, inventory and billing module and human resources
module were brought into production on June 1 and July 1, 1999, respectively.
The total cost of the SAP implementation is estimated to be approximately $125
million, which includes software, hardware, reengineering and change management.
Management has determined that SAP is an appropriate solution to the Year 2000
issue related to the systems for which SAP is implemented. Such systems comprise
approximately 80 percent of CITGO's total information systems. The
implementation of SAP is 90 percent complete, and is on schedule and on budget
as revised through June 30, 1999. Remaining business software systems are
expected to be made Year 2000 ready through the Year 2000 Project or they will
be replaced.

         The Project. CITGO's Year 2000 Project Team is divided into two groups.
One group is working with Information Systems ("I.S.") and Information
Technology ("I.T.") related matters, while


                                       14

<PAGE>   17


the other is analyzing non-I.S./I.T. business and asset integrity matters. A
risk-based approach toward Year 2000 readiness was applied to non-SAP systems
and processes, with most fix-or-replace decisions made by year-end 1998. The
strategy for achieving Year 2000 business and asset integrity is focused on
equipment, software and relationships that are critical to the Company's primary
business operations, including refinery operations, terminal operations, crude
oil purchase and shipment operations, and refined product distribution
operations. The Company engaged third party consultants to review and validate
the methodology and organization of the Project. The Project strategy involves a
number of phases: Inventory and Assessment of Critical Equipment, Software and
Relationships; Contingency Planning; Remediation; Testing; and Readiness.

         The Inventory and Assessment of Critical Equipment, Software and
Relationships phase of the Project has been completed. CITGO now requires that
all new contracts with vendors, suppliers, or business partners include a clause
covering Year 2000 readiness. CITGO also seeks evidence of Year 2000 readiness
from service providers prior to procuring new services.

         While the CITGO Project is systematically assessing the Year 2000
readiness of third party suppliers and customers, there can be no guarantee that
third parties of business importance to the Company will successfully and timely
reprogram, replace, or test all of their own computer hardware, software and
process control systems. CITGO has therefore chosen to continue assessment and
reevaluation of third party relationships beyond the deadline for completion of
other aspects of Inventory and Assessment phases of the Project. Reviews of
third party Year 2000 readiness will continue through 1999.

         CITGO has established a Year 2000 Contingency Planning Team. The
strategy for Contingency Planning included a review and analysis of existing
contingency plans for CITGO refineries, terminals, pipelines and other
operations, in light of potential Year 2000 issues discovered in the Inventory
and Assessment phases of the Project. The Contingency Planning phase has also
evaluated and implemented changes to the existing contingency plans. Contingency
plans based on this process were completed for mission critical items and
external providers as of June 30, 1999. Remediation continues and includes
technical analysis, testing and, if necessary, retrofitting or replacement of
systems and equipment determined to be incapable of reliable operations in the
Year 2000. As of August 1, 1999, the Remediation phase was substantially
complete. The final phase of the Project, Readiness, is being conducted
concurrently with other Project phases. As systems, equipment, processes and
business relationships are determined and documented as Year 2000 ready, Project
resources are being shifted to pursue Readiness in remaining areas of the
enterprise.

         The following is CITGO's definition of Year 2000 Readiness:

o    Correctly and accurately handle date information before, during and after
     midnight, December 31, 1999.
o    Function correctly and accurately, and without disruption, before, during
     and after January 1, 2000.
o    Respond to two-digit year date input in a way that resolves ambiguity as to
     the century in a disclosed, defined and predetermined manner.
o    Process all date data to reflect the year 2000 as a leap year.
o    Correctly and accurately recognize and process any date with a year
     specified as "99" and "00".

         Costs. The estimated total cost of the Project is not expected to
exceed $20 million, down from an original estimate of $35 million. The reduction
is due to less than expected need for remediation of embedded systems and
refinements in expense estimates. This estimate does not include CITGO's
potential share of Year 2000 costs that may be incurred by partnerships and
joint ventures in which


                                       15

<PAGE>   18


CITGO participates but is not the managing partner or operator. The total amount
expended through June 30, 1999 was approximately $10 million. Approximately 51%
of these expenditures were for internal costs to conduct the various phases of
the project. Approximately 27% were primarily for consultants in the specialized
areas of Project Management, Contingency Planning, Information Technology,
Database Administration and Operations Analysis, as well as fees paid to third
parties for Quality Assessment analysis of Project organization and methodology.
The remaining 22% were for actual remediation of critical items, systems, and
external providers, as well as contingency planning and testing.

         The costs of the Project are being funded with cash from operations. No
existing or planned I.T. projects have been deferred or delayed due to Year 2000
readiness initiatives. The cost of implementing SAP replacement systems is not
included in these estimates.

         The majority of estimated future costs for completing the Project are
anticipated to be directed toward the replacement and repair of systems and
equipment found to be incapable of reliable operation in the Year 2000.
Estimates for replacement and repair costs will be refined over time as the
Remediation phase progresses.

         Risks. The failure to correct a material Year 2000 problem could result
in an interruption, or failure of, certain normal business activities or
operations. Because the Company is dependent, to a very substantial degree, upon
the proper functioning of its computer systems and its interaction with third
parties, including vendors and customers and their computer systems, a failure
of any of these systems to be Year 2000 compliant could have a material adverse
effect on the Company. Failure of this kind could, for example, cause disruption
in the supply of crude oil, cause disruption in refinery operations, cause
disruption in the distribution of refined products, lead to incomplete or
inaccurate accounting, recording, or processing of purchases of supplies or
sales of refined products, or result in generation of erroneous results. If not
remedied, potential risks include business interruption, financial loss,
regulatory actions, reputational harm, and legal liability. Such failures could
adversely affect CITGO's results of operations, liquidity and financial
condition. Unlike other business interruption scenarios, Year 2000 implications
could include multiple, simultaneous events which could result in unpredictable
outcomes.

         Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of third party
suppliers and customers, CITGO management is unable to determine at this time
whether the consequences of Year 2000 failures will have a material impact on
the Company's operations, liquidity or financial position. The Project is
expected to significantly reduce the Company's level of uncertainty about the
Year 2000 impact. CITGO management believes that, with the implementation of new
SAP business systems and completion of the Project as scheduled, the possibility
of significant interruptions of normal operations should be minimized. See also
"Factors Affecting Forward Looking Statements".


                                       16

<PAGE>   19


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. To manage these
exposures, 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, 1999, 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. 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 manages a portion of its price risk by entering into
petroleum futures contracts, options and other over-the-counter commodity
derivatives. Generally, CITGO's risk management strategies qualify as hedges.
However, certain strategies do not qualify as hedges. CITGO may take commodity
positions based on its views or expectations of specific commodity prices or
price differentials between commodity types.


                        NON TRADING COMMODITY DERIVATIVES
                         OPEN POSITIONS AT JUNE 30, 1999

<TABLE>
<CAPTION>

                                                        MATURITY     NUMBER OF     CONTRACT     MARKET
    COMMODITY                DERIVATIVE                   DATE       CONTRACTS     VALUE (2)    VALUE
    ---------                ----------                 --------     ---------     ---------    ------
                                                                                     ($ in millions)
                                                                                     ---------------
<S>                       <C>                           <C>          <C>           <C>          <C>
No Lead Gasoline (1)      Futures Purchased               1999          5           $0.1        $0.1
                          Futures Sold                    1999          25          $0.5        $0.6

Heating Oil (1)           Futures Purchased               1999         242          $4.7        $5.0
                          Futures Purchased               2000          12          $0.2        $0.3
                          Futures Sold                    1999          50          $1.0        $1.0
                          OTC Swaps                       1999          14          $0.3        $0.3
                          OTC Swaps                       2000          17          $0.3        $0.4

Natural Gas (3)           Futures Purchased               1999          79          $1.6        $2.0
</TABLE>


(1)   1000 barrels per contract
(2)   Weighted average price
(3)   10,000 mmbtu per contract

         Debt Related Instruments. CITGO has fixed and floating U.S. currency
denominated debt. CITGO uses interest rate swaps to manage its debt portfolio
toward a benchmark of 40 to 60 percent fixed rate debt to total fixed and
floating rate debt. These instruments have the effect of changing the interest
rate with the objective of minimizing CITGO's long-term costs. At June 30, 1999,
CITGO's primary exposures were to U.S. dollar LIBOR and U.S. Treasury rates.


                                       17

<PAGE>   20


         For interest rate swaps, 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.

                      NON TRADING INTEREST RATE DERIVATIVES
                         OPEN POSITIONS AT JUNE 30, 1999
<TABLE>
<CAPTION>

                                                                       NOTIONAL
                           EXPIRATION            FIXED RATE           PRINCIPAL
 VARIABLE RATE INDEX         DATE                  PAID                AMOUNT
 -------------------       ----------            ----------           ---------
                                                                    ($ in millions)
<S>                        <C>                   <C>                 <C>
One-month LIBOR            May 2000                6.28%              $ 25
J.J. Kenny                 May 2000                4.72%                25
J.J. Kenny                 February 2005           5.30%                12
J.J. Kenny                 February 2005           5.27%                15
J.J. Kenny                 February 2005           5.49%                15
                                                                      ----
                                                                      $ 92
                                                                      ====
</TABLE>

         The fair value of the interest rate swap agreements in place at June
30, 1999, based on the estimated amount that CITGO would receive or pay to
terminate the agreements as of that date and taking into account current
interest rates, was an unrealized loss of $2.4 million.

         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, 1999

<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>
          1999                  $ 40           9.11%            $ 138            5.49%
          2000                    40           9.11%                7            6.05%
          2001                    40           9.11%                7            6.47%
          2002                    36           8.78%                -            6.60%
          2003                    61           8.79%              100            6.70%
       Thereafter                422           8.02%              481            6.81%
                               -----           -----             ----            -----
         Total                 $ 639           8.34%            $ 733            6.54%
                               =====           =====            =====            =====
       Fair Value              $ 617                            $ 733
                               =====                            =====
</TABLE>



                                       18


<PAGE>   21


                           PART II. OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

     Various lawsuits and claims arising in the ordinary course of business are
     pending against the Company. The Company 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 the Company, and in amounts greater than the Company's
     accruals, then such determinations could have a material adverse effect on
     the Company's results of operations in a given reporting period. However,
     in management's opinion the ultimate resolution of these lawsuits and
     claims will not exceed, by a material amount, the amount of the accruals
     and the insurance coverage available to the Company. This opinion is based
     upon management's and counsel's current assessment of these lawsuits and
     claims. The most significant lawsuits and claims are discussed below.

     In May 1997, an explosion and fire occurred at CITGO's Corpus Christi
     refinery. No serious personal injuries were reported. CITGO received
     approximately 7,500 individual claims for personal injury and property
     damage related to the above noted incident. Approximately 1,300 of these
     claims have been resolved for amounts which individually and collectively
     were not material. There are presently seventeen lawsuits filed on behalf
     of approximately 9,000 individuals arising out of this incident pending
     against CITGO in federal and state courts in Corpus Christi alleging
     property damages, personal injury and punitive damages. A trial of one of
     the federal court lawsuits in October 1998 involving ten bellwether
     plaintiffs, out of approximately 400 plaintiffs, resulted in a verdict for
     CITGO. The remaining plaintiffs in this case have agreed to settle for an
     immaterial amount.

     A class action lawsuit is pending in Corpus Christi, Texas state court
     against CITGO and other operators and owners of nearby industrial
     facilities which claims damages for reduced value of residential properties
     located in the vicinity of the industrial facilities as a result of air,
     soil and groundwater contamination. Trial is scheduled for January 2000.
     CITGO has contracted to purchase approximately 267 properties that were
     included in the lawsuit and are in a neighborhood adjacent to CITGO's
     Corpus Christi refinery and settle the property damage claims relating to
     these properties. CITGO has offers open to purchase the remaining eight
     properties in the neighborhood. Related to this purchase, $15.7 million was
     expensed in 1997. Two related personal injury and wrongful death lawsuits
     were filed against the same defendants in 1996, one of which is scheduled
     for trial in 2000; a trial date for the other case has not been set.

     Litigation is pending in federal court in Lake Charles, Louisiana, against
     CITGO by a number of current and former Lake Charles refinery employees and
     applicants asserting claims of racial discrimination in connection with
     CITGO's employment practices. Trials in this case are set to begin in the
     fall of 1999.

     CITGO is among defendants to lawsuits in California and North Carolina
     alleging contamination of water supplies by methyl tertiary butyl ether
     ("MTBE"), a component of gasoline. The action in California was filed in
     November 1998 by the South Tahoe Public Utility District and CITGO was
     added as a defendant in February 1999. The North Carolina case, filed in
     January 1999, is a putative class action on behalf of owners of water wells
     and other drinking water supplies in the


                                       19
<PAGE>   22


     state. Both actions allege that MTBE poses public health risks. Both
     actions seek damages as well as remediation of the alleged contamination.
     These matters are in early stages and there has been no discovery conducted
     against CITGO. CITGO has denied all of the allegations and is pursuing its
     defenses.



                                       20


<PAGE>   23


ITEM 5.  OTHER INFORMATION

     On June 29, 1999, a group of U.S. independent oil producers filed petitions
     under the U.S. antidumping and countervailing duty laws against imports of
     crude oil from Venezuela, Iraq, Mexico, and Saudi Arabia.

     These laws provide for the imposition of additional duties on imports of
     merchandise if (1) the U.S. Department of Commerce ("DOC") determines that
     the merchandise has been sold to the United States at dumped prices or has
     benefited from countervailable subsidies, and (2) the U.S. International
     Trade Commission ("ITC") determines that the imported merchandise has
     caused or threatened material injury to the U.S. industry producing like
     product. The amount of the additional duties imposed is generally equal to
     the amount of the dumping margin and subsidies found on the imports on
     which the duties are assessed.

     On August 9, 1999 the DOC dismissed the petitions and terminated the
     antidumping and countervailing duty investigations because the petitioners
     did not have the required industry support. Consequently, no further action
     will be taken by the DOC or the ITC. The petitioners have stated that they
     may appeal this decision to the U.S. Court of International Trade.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

 (a)     Exhibits

         Exhibit No.                  Description
         -----------                  -----------
             27          Financial Data Schedule (filed electronically only)

 (b)     Reports on Form 8-K:

                None.



                                       21



<PAGE>   24



                                   SIGNATURES



         Pursuant to the requirements of the Securities 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, 1999                            /s/ R. M. Bright
                                          -------------------------------------
                                                       R. M. Bright
                                          Controller (Chief Accounting Officer)


                                       22

<PAGE>   25


                                 EXHIBIT INDEX

<TABLE>
<CAPTION>


         Exhibit No.          Description
         -----------          -----------
<S>                      <C>
             27          Financial Data Schedule (filed electronically only)
</TABLE>