<PAGE>

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

                                  United States

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-Q

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004

                                       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)

         ONE WARREN PLACE, 6100 SOUTH YALE AVENUE, TULSA, OKLAHOMA 74136
         ---------------------------------------------------------------
          (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.

      COMMON STOCK, $1.00 PAR VALUE                        1,000
      -----------------------------                        -----
                (Class)                     (outstanding at October 31, 2004)

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

<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 SEPTEMBER 30, 2004

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  - September 30, 2004 and
            December 31, 2003................................................................  2

            Condensed Consolidated Statements of Income and Comprehensive Income -
            Three and Nine-Month Periods Ended September 30, 2004 and 2003...................  3

            Condensed Consolidated Statement of Shareholder's Equity - Nine-Month Period
            Ended September 30, 2004.........................................................  4

            Condensed Consolidated Statements of Cash Flows - Nine-Month Periods Ended
            September 30, 2004 and 2003......................................................  5

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

   Item 2.  Management's Discussion and Analysis of Financial Condition and
            Results of Operations............................................................ 18

   Item 3.  Quantitative and Qualitative Disclosures About Market Risk....................... 25

   Item 4.  Controls and Procedures.......................................................... 30

PART II.     OTHER INFORMATION

   Item 1.  Legal Proceedings................................................................ 31

   Item 6.  Exhibits......................................................................... 31

SIGNATURES................................................................................... 32
</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 one-half 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.

            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>
                                                                                     SEPTEMBER 30,  DECEMBER 31,
                                                                                        2004            2003
                                                                                     (UNAUDITED)
                                                                                     -----------    -----------
<S>                                                                                  <C>            <C>
ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                                                         $   469,954    $   202,008
   Accounts receivable, net                                                            1,440,053      1,060,333
   Due from affiliates                                                                   109,532         71,336
   Inventories                                                                         1,001,353      1,017,613
   Prepaid expenses and other                                                             48,875         28,003
                                                                                     -----------    -----------
     Total current assets                                                              3,069,767      2,379,293
PROPERTY, PLANT AND EQUIPMENT - Net                                                    3,960,810      3,907,203
RESTRICTED CASH                                                                            2,310          6,886
INVESTMENTS IN AFFILIATES                                                                580,886        647,649
OTHER ASSETS                                                                             356,874        332,462
                                                                                     -----------    -----------
                                                                                     $ 7,970,647    $ 7,273,493
                                                                                     ===========    ===========
LIABILITIES AND SHAREHOLDER'S EQUITY

CURRENT LIABILITIES:
   Accounts payable                                                                  $   758,800    $   766,331
   Payables to affiliates                                                                722,001        486,058
   Taxes other than income                                                               238,798        173,932
   Other                                                                                 380,698        255,953
   Current portion of long-term debt                                                      11,364         31,364
   Current portion of capital lease obligation                                             3,403          2,336
                                                                                     -----------    -----------
     Total current liabilities                                                         2,115,064      1,715,974
LONG-TERM DEBT                                                                         1,279,244      1,442,100
CAPITAL LEASE OBLIGATION                                                                  46,285         25,969
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS                                              349,868        319,911
OTHER NONCURRENT LIABILITIES                                                             315,730        308,248
DEFERRED INCOME TAXES                                                                    931,280        959,807
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                                                                   1,293,403        863,093
   Accumulated other comprehensive loss                                                  (19,926)       (21,308)
                                                                                     -----------    -----------
     Total shareholder's equity                                                        2,933,176      2,501,484
                                                                                     -----------    -----------
                                                                                     $ 7,970,647    $ 7,273,493
                                                                                     ===========    ===========
</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)

<TABLE>
<CAPTION>
                                                                          THREE MONTHS                NINE MONTHS
                                                                       ENDED SEPTEMBER 30,         ENDED SEPTEMBER 30,
                                                                    --------------------------   ------------------------
                                                                        2004          2003          2004         2003
                                                                    -----------   ------------   -----------  -----------
<S>                                                                 <C>           <C>            <C>          <C>
REVENUES:
     Net sales                                                      $ 8,749,338   $  6,430,568   $23,292,869  $18,595,453
     Sales to affiliates                                                129,952         71,763       306,832      303,627
                                                                    -----------   ------------   -----------  -----------
                                                                      8,879,290      6,502,331    23,599,701   18,899,080
     Equity in earnings of affiliates                                    71,036         35,398       166,229       79,973
     Insurance recoveries                                                     -          1,863             -      146,165
     Other income (expense) - net                                         1,560          1,208         2,135       16,899
                                                                    -----------   ------------   -----------  -----------
                                                                      8,951,886      6,540,800    23,768,065   19,142,117
COST OF SALES AND EXPENSES:
     Cost of sales and operating expenses (including
             purchases of $3,554,449, $2,450,149, $9,201,366,
             and $6,680,122 from affiliates)                          8,532,015      6,267,004    22,792,607   18,284,027
     Selling, general and administrative expenses                        78,165         80,788       218,813      218,115
     Interest expense, excluding capital lease                           28,493         31,264        98,736       87,124
     Capital lease interest charge                                          955          1,011         2,481        3,806
                                                                    -----------   ------------   -----------  -----------
                                                                      8,639,628      6,380,067    23,112,637   18,593,072
                                                                    -----------   ------------   -----------  -----------
INCOME BEFORE INCOME TAXES                                              312,258        160,733       655,428      549,045
INCOME TAXES                                                            107,248         57,864       225,118      197,656
                                                                    -----------   ------------   -----------  -----------
NET INCOME                                                              205,010        102,869       430,310      351,389
                                                                    -----------   ------------   -----------  -----------
OTHER COMPREHENSIVE INCOME (LOSS):
         Cash flow hedges:
                 Reclassification adjustment for derivative losses
                     included in net income, net of related income
                     taxes of $38, $39, $123 and $127                        79             70           236          225
         Foreign currency translation (loss) gain, net of related
                 income taxes of $(5), $(83), $375 and $591                 (11)          (147)          718        1,050
         Minimum pension liability adjustment, net of deferred
                 taxes of $241                                                -              -           428            -
                                                                    -----------   ------------   -----------  -----------
OTHER COMPREHENSIVE INCOME (LOSS)                                            68            (77)        1,382        1,275
                                                                    -----------   ------------   -----------  -----------
COMPREHENSIVE INCOME                                                $   205,078   $    102,792   $   431,692  $   352,664
                                                                    ===========   ============   ===========  ===========
</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, 2003              1     $1    $1,659,698  $  863,093    $(21,308)    $2,501,484
Net income                              -      -             -     430,310           -        430,310
Other comprehensive income (loss)       -      -             -           -       1,382          1,382
                                        -     --    ----------  ----------    --------     ----------
BALANCE, SEPTEMBER 30, 2004             1     $1    $1,659,698  $1,293,403    $(19,926)    $2,933,176
                                        =     ==    ==========  ==========    ========     ==========
</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>
                                                                                         NINE MONTHS
                                                                                     ENDED SEPTEMBER 30,
                                                                                    ---------------------
                                                                                      2004         2003
                                                                                    ---------   ---------
<S>                                                                                 <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                                                     $ 430,310   $ 351,389
     Depreciation and amortization                                                    270,220     245,397
     Other adjustments to reconcile net income to net cash
         provided by operating activities                                              88,872     180,203
     Changes in operating assets and liabilities                                      (92,425)     69,373
                                                                                    ---------   ---------
             Net cash provided by operating activities                                696,977     846,362
                                                                                    ---------   ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital expenditures                                                            (226,549)   (315,105)
     Proceeds from sales of property, plant and equipment                                 539       3,845
     Decrease (increase) in restricted cash                                             4,576      (1,162)
     Investments in LYONDELL-CITGO Refining LP                                        (19,511)    (17,083)
     Investments in and advances to other affiliates                                   (1,554)     (2,537)
                                                                                    ---------   ---------
             Net cash used in investing activities                                   (242,499)   (332,042)
                                                                                    ---------   ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from senior notes due 2011                                                    -     546,590
     (Payment of) proceeds from senior secured term loan                             (200,000)    200,000
     Net repayments of revolving bank loans                                                 -    (279,300)
     Repurchase of senior notes due 2006                                                    -     (47,500)
     Payments on master shelf agreement senior notes                                  (20,000)    (50,000)
     Proceeds from (payments on) tax-exempt bonds                                      61,800    (126,050)
     Payments on taxable bonds                                                        (25,000)    (90,000)
     Payments on loans from affiliates                                                      -     (39,000)
     Payments of capital lease obligations                                             (2,604)    (11,860)
     Dividend paid                                                                          -    (500,000)
     Debt issuance costs                                                                 (728)    (19,136)
                                                                                    ---------   ---------
             Net cash used in financing activities                                   (186,532)   (416,256)
                                                                                    ---------   ---------
INCREASE IN CASH AND CASH EQUIVALENTS                                                 267,946      98,064

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                        202,008      33,025
                                                                                    ---------   ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                            $ 469,954   $ 131,089
                                                                                    =========   =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash paid during the period for:
                 Interest, net of amounts capitalized                               $ 111,643   $  66,578
                                                                                    =========   =========
                 Income taxes (net of refunds of $231 in 2004 and $47,769 in 2003)  $ 137,554   $  45,305
                                                                                    =========   =========
</TABLE>

See notes to condensed consolidated financial statements.

                                       5
<PAGE>

CITGO PETROLEUM CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE-MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

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, 2003 and
      with respect to the interim three-month and nine-month periods ended
      September 30, 2004 and 2003 is unaudited. In management's opinion, such
      interim information contains all adjustments, consisting only of normal
      recurring adjustments, necessary for a fair presentation of the results of
      such periods. The results of operations for the three-month and nine-month
      periods ended September 30, 2004 and 2003 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, 2003 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 applicable provisions of FIN 46R had no impact on financial
      position or results of operations for the nine-month period ended
      September 30, 2004 and CITGO expects that the application of FIN 46R will
      not have a material impact on its financial position or results of
      operations in the future.

                                       6
<PAGE>

3.    ACCOUNTS RECEIVABLE

      The Company has a limited purpose consolidated subsidiary, CITGO Funding
      Corporation ("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 amount sold to
      third-parties at any one time under the trade accounts receivable sales
      agreement is limited to a maximum of $275 million.

      As of September 30, 2004, none of the receivables in the designated pool
      had been sold to the third party and the entire amount was retained by
      CITGO Funding.

4.    INVENTORIES

      Inventories, primarily at LIFO, consist of the following:

<TABLE>
<CAPTION>
                        SEPTEMBER 30,   DECEMBER 31,
                            2004           2003
                        (UNAUDITED)
                        -------------   ------------
                               (000S OMITTED)
<S>                     <C>             <C>
Refined products         $  746,535     $  686,483
Crude oil                   162,775        239,974
Materials and supplies       92,043         91,156
                         ----------     ----------
                         $1,001,353     $1,017,613
                         ==========     ==========
</TABLE>

5.    RESTRICTED CASH

      CITGO issued $30 million of tax-exempt environmental facilities revenue
      bonds in June 2002 and $39 million in May 2003. The proceeds from these
      bonds are being used for spending on qualified projects at the Lemont and
      Corpus Christi refineries. Restricted cash of approximately $2 million at
      September 30, 2004 represents highly liquid investments held in trust
      accounts in accordance with these bond agreements. Funds may be released
      solely to finance the qualified capital expenditures as defined in the
      related bond agreements.

                                       7
<PAGE>

6.    LONG-TERM DEBT AND FINANCING ARRANGEMENTS

      Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                SEPTEMBER 30,  DECEMBER 31,
                                                                    2004          2003
                                                                (UNAUDITED)
                                                                ------------   ------------
                                                                      (000S OMITTED)
<S>                                                             <C>            <C>
Senior Secured Term Loan, due 2006 with variable interest rate  $         -    $   200,000

Senior Notes, $150 million face amount, due 2006 with
    interest rate of 7-7/8%                                         149,964        149,946

Senior Notes, $550 million face amount, due 2011 with
    interest rate of 11-3/8%                                        547,272        546,949

Private Placement Senior Notes, due 2004 to 2006 with an
    interest rate of 9.30%                                           34,091         34,091

Master Shelf Agreement Senior Notes, due 2006 to
    2009 with interest rates from 7.17% to 8.94%                    165,000        185,000

Tax-Exempt Bonds, due 2007 to 2031 with variable
    and fixed interest rates                                        394,281        332,478

Taxable Bonds, due 2028 with variable interest rate                       -         25,000
                                                                -----------    -----------

                                                                  1,290,608      1,473,464
Current portion of long-term debt                                   (11,364)       (31,364)
                                                                -----------    -----------
                                                                $ 1,279,244    $ 1,442,100
                                                                ===========    ===========
</TABLE>

      CITGO has a $260 million unsecured revolving credit facility maturing in
      December 2005. There was no outstanding balance under this credit facility
      at September 30, 2004.

      The Company had a senior secured term loan under an agreement with a
      syndicate of various lenders. The senior loan was secured by CITGO's
      equity interest in two pipeline companies. CITGO retired the senior loan
      on June 25, 2004. The costs to retire the senior loan prior to the
      maturity date of February 2006 included a prepayment charge of $4 million.

      In February 2003, CITGO issued $550 million aggregate principal amount of
      11-3/8% unsecured senior notes due February 1, 2011. In connection with
      this debt issuance, CITGO repurchased $50 million principal amount of its
      7-7/8% senior notes due 2006.

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

      Approximately $247 million of the outstanding tax-exempt bonds are
      supported by letters of credit issued by various banks. In February 2004,
      CITGO reissued $11.8 million of tax-exempt revenue bonds due 2007 which
      had been repurchased by the Company during 2003 due to lack of letter of
      credit support. In

                                       8
<PAGE>

      September 2004, CITGO reissued $25 million of tax-exempt revenue bonds due
      2031 which had been repurchased by the Company during 2003 due to lack of
      letter of credit support.

      On May 3, 2004, CITGO issued $25 million of tax-exempt environmental
      revenue bonds due 2032 through a governmental issuer that refunded $25
      million of taxable environmental revenue bonds due 2028 previously issued
      through that issuer. The tax-exempt bonds are supported by a letter of
      credit issued by a bank.

      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
      September 30, 2004.

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 September 30, 2004, CITGO has a note receivable from LYONDELL-CITGO
      of $35 million. The note bears interest at market rates, which was
      approximately 1.8 percent at September 30, 2004. 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)
                                                 September 30,   December 31,
                                                    2004            2003
                                                 -------------   ------------
                                                  (Unaudited)
<S>                                              <C>             <C>
Carrying value of investment                     $  392,831       $  454,679
Notes receivable                                     35,278           35,278
Participation interest                                   41%              41%

Summary of LYONDELL-CITGO's financial position:
     Current assets                              $  409,000       $  316,000
     Non current assets                           1,271,000        1,321,000
     Current liabilities                            662,000          386,000
     Noncurrent liabilities                         814,000          828,000
     Partners' capital                              204,000          423,000
</TABLE>

<TABLE>
<CAPTION>
                                                       Nine Months Ended
                                                         September 30,
                                                 ---------------------------
                                                    2004             2003
                                                 ----------       ----------
                                                          (Unaudited)
<S>                                              <C>              <C>
Equity in net income                             $  133,910       $   56,552
Cash distribution received                          215,944          150,904

Summary of LYONDELL-CITGO's operating results:
     Revenue                                     $4,038,659       $3,117,794
     Gross profit                                   409,970          224,145
     Net income                                     341,292          155,360
</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
      new 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 new facility which reduces the interest rate to LIBOR plus 2
      percent and eases certain financial covenants, including the debt to total
      capitalization ratio. There was no outstanding balance under the working
      capital revolving credit facility at September 30, 2004.

                                       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. In the six pre-September 30, 2003 cases, CITGO is
      defending itself in Madison County, Illinois state court and in two New
      York county state courts. In several of the New York cases, the judge on
      March 26, 2004, granted CITGO's Motion for Summary Judgment. As of early
      October 2004, settlements in principle had been reached in both Madison
      County, Illinois cases. There will be no effect on results of operations
      because the accrual for these cases was adequate. 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 60
      cases, the majority of which were filed by municipal authorities, were
      removed to federal court and at the defendants' request consolidated in
      Multi-District Litigation ("MDL") 1358. On March 16, 2004, the judge in
      MDL 1358 denied the plaintiffs' motion to remand the cases to state court.
      The remaining New York state case has been removed to federal court and
      consolidated with the MDL 1358 cases and the judge has denied plaintiffs'
      motion to remand that case. It is not possible to estimate the loss or
      range of loss, if any, related to these cases.

      CITGO has been named as a defendant in approximately 150 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.

      At September 30, 2004, CITGO's balance sheet included an accrual for
      lawsuits and claims of $24 million compared with $27 million at December
      31, 2003. Unrelated to the reduction in the accrual, CITGO estimates that
      an additional loss of $17 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
      is required to obtain permits under all of these programs and believes it
      is in material compliance with the terms of these permits. CITGO does not
      have any material Comprehensive

                                       11
<PAGE>

      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
      requires 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, may 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 its consolidated results of operations,
      financial condition and cash flows.

      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. 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. Based on currently available
      information and proposed remedial approach, CITGO currently anticipates
      closure and post-closure costs related to these surface impoundments and
      related solid waste management units to range from $32 million to $37
      million in addition to the approximately $49 million already expended.
      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.

      CITGO's Corpus Christi, Texas refinery is 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 cannot predict the
      outcome of or the amount or range of any potential loss that would ensue
      from any such charges.

      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.

                                       12
<PAGE>

      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 reached a settlement with the United States and the states
      of Louisiana, Illinois, New Jersey, and Georgia. The settlement has been
      memorialized in a Consent Decree lodged in the District court for the
      Southern District of Texas on October 6, 2004. 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. CITGO estimates that the costs of the settlement could range up
      to $325 million which includes a civil penalty of $3.6 million, split
      between the U.S. EPA and the states. CITGO accrued for the civil penalty
      during 2003. The capital costs will be incurred over a period of time,
      primarily between 2004 and 2009.

      In June 1999, an NOV was issued by the U.S. EPA alleging violations of the
      National Emission Standards for Hazardous Air Pollutants regulations
      covering benzene emissions from wastewater treatment operations at CITGO's
      Lemont, Illinois refinery. CITGO is in settlement discussions with the
      U.S. EPA. This matter has been consolidated with the matters described in
      the previous paragraph.

      In June 2002, a Consolidated Compliance Order and Notice of Potential
      Penalty was issued by the LDEQ alleging violations of the Louisiana air
      quality regulations at CITGO's Lake Charles, Louisiana refinery during
      2001. The majority of the alleged violations related to the leak detection
      and repair program. CITGO is in settlement discussions with the LDEQ. This
      matter has been consolidated with the matters described in the previous
      paragraph related to the U.S. EPA's enforcement initiative.

      In October 2004, the New Jersey Land Trust voted to reject the donation by
      CITGO of a conservation easement covering the 365 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 endangered
      species like the bald eagle. 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 September 30, 2004, CITGO's balance sheet included an environmental
      accrual of $65 million compared with $63 million at December 31, 2003.
      Results of operations reflect an increase in the accrual during 2004 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 $36
      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.

      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

                                       13
<PAGE>

      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 September 30, 2004,
      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 September 30,
      2004, the balance sheet captions prepaid expenses and other current assets
      and other current liabilities include $25 million and $22 million,
      respectively, related to the fair values of open commodity derivatives.

      CITGO has also entered into various interest rate swaps to manage the
      Company's risk related to interest rate changes on its debt. The fair
      value of the interest rate swap agreements in place at September 30, 2004,
      based on the estimated amount that the Company would receive or pay to
      terminate the agreements as of that date and taking into account current
      interest rates, was a loss of $1 million, the offset of which is recorded
      in the balance sheet caption other current liabilities. In connection with
      the determination of fair market value, the Company considered the
      creditworthiness of the counterparties, but no adjustment was determined
      to be necessary as a result.

      GUARANTEES - As of September 30, 2004, 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, customer debt related to the acquisition of marketing equipment
      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      2004-2005
Bank debt
     Equity investment                     5,500        none
     Customers                             1,729        2006
Financing debt of customers
     Customer equipment acquisition          389      2004-2007
     Equipment acquisition - NISCO        10,047        2008
                                         -------
     Total                               $50,646
                                         =======
</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 customers, CITGO would receive an
      interest in the equipment being financed after making the guaranteed debt
      payment. 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

                                       14
<PAGE>

      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.

9.    RELATED PARTY TRANSACTIONS

      CITGO purchases approximately one-half 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
      September 30, 2004 and December 31, 2003, there was no outstanding balance
      on these notes.

                                       15
<PAGE>

10.   EMPLOYEE BENEFIT PLANS

      COMPONENTS OF NET PERIODIC BENEFIT COST

            For the three months ended September 30:

<TABLE>
<CAPTION>
                                          PENSION BENEFITS       OTHER BENEFITS
                                         -------------------   -------------------
                                          2004       2003        2004       2003
                                                      (000S OMITTED)
<S>                                      <C>        <C>        <C>        <C>
Service cost                             $  5,743   $  4,975   $  2,285   $  2,200
Interest cost                               7,954      7,332      5,767      5,556
Expected return on plan assets             (7,285)    (6,563)       (18)       (18)
Amortization of Transition Asset              (12)       (38)         -          -
Amortization of prior service cost           (193)      (192)      (130)         -
Amortization of net loss                      818        806      4,911     12,537
                                         --------   --------   --------   --------
Net periodic benefit cost                $  7,025   $  6,320   $ 12,815   $ 20,275
                                         ========   ========   ========   ========
</TABLE>

            For the nine months ended September 30:

<TABLE>
<CAPTION>
                                          PENSION BENEFITS       OTHER BENEFITS
                                         -------------------   -------------------
                                          2004       2003        2004       2003
                                                      (000S OMITTED)
<S>                                      <C>        <C>        <C>        <C>
Service cost                             $ 17,229   $ 14,925   $  6,855   $  6,600
Interest cost                              23,862     21,996     17,301     16,668
Expected return on plan assets            (21,855)   (19,689)       (54)       (54)
Amortization of Transition Asset              (36)      (114)         -          -
Amortization of prior service cost           (579)      (576)      (390)         -
Amortization of net (gain) loss             2,454      2,418     14,734     37,611
                                         --------   --------   --------   --------
Net periodic benefit cost                $ 21,075   $ 18,960   $ 38,446   $ 60,825
                                         ========   ========   ========   ========
</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 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 third
      quarter and nine months ended September 30, 2004 have been reduced $10
      million and $30 million, respectively, related to this actuarial gain.

      EMPLOYER CONTRIBUTIONS

      CITGO previously disclosed in its financial statements for the year ended
      December 31, 2003, that it expected to contribute $58 million to its
      pension plan in 2004. Through October 15, 2004, CITGO has contributed
      approximately $41 million to its pension plan in 2004.

                                       16
<PAGE>

11.   CORPORATE HEADQUARTERS RELOCATION

      In April 2004, CITGO announced its strategic 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 September 30, 2004, 106
      positions have been transferred. The relocation is expected to be complete
      in July 2005.

<TABLE>
<CAPTION>
                                    Expected    Amount       Cumulative
                                     Total     Incurred        Amount
                                     Amount   this Quarter    Incurred
                                    --------  ------------   ----------
                                             ($ in millions)
<S>                                 <C>       <C>            <C>
Relocation costs                     $ 27         $   7        $   7
Severance and related costs            21             3            3
Property and infrastructure costs      33             1            1
                                     ----         -----        -----
     Total                           $ 81         $  11        $  11
                                     ====         =====        =====

</TABLE>

      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. An
      accrual of $2 million related to relocation costs is included in CITGO's
      condensed consolidated balance sheet as a component of the caption current
      liabilities other. Costs related to property and infrastructure are
      included in CITGO's condensed consolidated balance sheet as a component of
      the caption property, plant and equipment.

      CITGO expects to spend approximately $36 million in the fourth quarter of
      2004 related to this relocation.

12.   SUBSEQUENT EVENT

      On October 22, 2004, CITGO issued $250 million of 6% unsecured senior
      notes due October 15, 2011. In connection with this transaction, CITGO
      repurchased approximately $540 million principal amount of its 11-3/8%
      senior notes due 2011 as part of a tender offer for such notes. CITGO will
      record, as charges to interest expense in the fourth quarter of 2004, a
      $121.9 million tender premium, $10.6 million unamortized fees and $2.7
      million unamortized discounts. As a result of this transaction, CITGO's
      weighted average cost of fixed rate borrowing was reduced from 8.8% to
      6.7%.

                                       17
<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 $205.0 million on total revenue of $9.0
billion in the quarter ended September 30, 2004 compared to net income of $102.9
million on total revenue of $6.5 billion (which included $2 million in insurance
recoveries) for the same period last year. We generated net income of $430.3
million on total revenue of $23.8 billion in the nine months ended September 30,
2004 compared to net income of $351.4 million on total revenue of $19.1 billion
(which included $146 million in insurance recoveries) for the same period in
2003. (See "Gross margin").

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

            We make a number of significant estimates, assumptions and judgments
on 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, 2003, for a discussion of the estimates and
judgments necessary in our accounting for environmental expenditures, litigation
and injury claims, health care costs and pensions.

                                       18
<PAGE>

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED       INCREASE        NINE MONTHS ENDED       INCREASE
                                                        SEPTEMBER 30,        (DECREASE)          SEPTEMBER 30,       (DECREASE)
                                                      2004       2003         FROM 2003        2004        2003       FROM 2003
                                                   ---------- ----------- ---------------- ------------ ---------- ---------------
(DOLLARS IN MILLIONS)
<S>                                                <C>        <C>         <C>              <C>          <C>        <C>
Net sales                                          $    8,749 $     6,431 $      2,318     $     23,293 $   18,595 $   4,698
Sales to affiliates                                       130          72           58              307        304         3
                                                   ---------- ----------- ------------     ------------ ---------- ---------
                                                        8,879       6,503        2,376 37%       23,600     18,899     4,701   25%
                                                   ---------- ----------- ------------     ------------ ---------- ---------
Equity in earnings of affiliates                           71          35           36              166         80        86
Insurance recoveries                                        -           2           (2)               -        146      (146)
Other income (expense), net                                 2           1            1                2         17       (15)
                                                   ---------- ----------- ------------     ------------ ---------- ---------
                                                        8,952       6,541        2,411 37%       23,768     19,142     4,626   24%
                                                   ---------- ----------- ------------     ------------ ---------- ---------

Cost of sales and operating expenses                    8,532       6,267        2,265           22,793     18,284     4,509
Selling, general and administrative expense                78          81           (3)             219        218         1
Interest expense, excluding capital lease                  29          31           (2)              99         87        12
Capital lease interest charge                               1           1            -                2          4        (2)
                                                   ---------- ----------- ------------     ------------ ---------- ---------
                                                        8,640       6,380        2,260 35%       23,113     18,593     4,520   24%
                                                   ---------- ----------- ------------     ------------ ---------- ---------

Income before income taxes                                312         161          151              655        549       106
Income taxes                                              107          58           49              225        198        27
                                                   ---------- ----------- ------------     ------------ ---------- ---------
Net income                                         $      205 $       103 $        102 99% $        430 $      351 $      79   23%
                                                   ========== =========== ============     ============ ========== =========

Gulf Coast 3/2/1 crack spread ($ per bbl) (1)      $     6.16 $      5.21 $       0.95 18% $       7.12 $     4.75 $    2.37   50%
Average price per gallon of gasoline (2)           $     1.28 $      0.98 $       0.30 31% $       1.22 $     0.95 $    0.27   28%
Average cost per barrel of crude oil (3)           $    37.46 $     26.76 $      10.70 40% $      34.45 $    27.15 $    7.30   27%
</TABLE>

----------
(1)   The Gulf Coast 3/2/1 crack spread is 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 third quarter of 2004, the heavy crack
      spread was $17.91 per barrel versus $11.00 per barrel during the third
      quarter of 2003. The values used to calculate the Gulf Coast 3/2/1 crack
      spread and the heavy crack spread are obtained from Platts using an
      average of daily prices for the three-month and nine-month periods ended
      September 30, 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.

                                       19
<PAGE>

            Sales revenues and volumes. Sales increased $2.4 billion, or
approximately 37%, in the three-month period ended September 30, 2004 as
compared to the same period in 2003. This increase was primarily due to an
increase in average sales price of 36%. Sales increased $4.7 billion, or
approximately 25% in the nine-month period ended September 30, 2004 as compared
to the same period in 2003. This increase was almost entirely due to an increase
in average sales price of 26%. The following table summarizes the sources of our
sales revenues and sales volumes for the three-month and nine-month periods
ended September 30, 2004 and 2003:

                                       CITGO SALES REVENUES AND VOLUMES
<TABLE>
<CAPTION>
                                         THREE MONTHS     NINE MONTHS      THREE MONTHS     NINE MONTHS
                                           ENDED            ENDED             ENDED            ENDED
                                         SEPTEMBER 30,   SEPTEMBER 30,     SEPTEMBER 30,   SEPTEMBER 30,
                                        --------------  ----------------  -------------   ----------------
                                         2004    2003    2004     2003     2004    2003     2004     2003
                                        ------  ------  -------  -------  ------  -----   -------   ------
                                                ($ in millions)                (Gallons in millions)
<S>                                     <C>     <C>     <C>      <C>      <C>     <C>      <C>      <C>
Gasoline                                $4,866  $3,831  $13,303  $10,727  3,791   3,918    10,889   11,272
Jet fuel                                   692     513    1,882    1,451    564     640     1,736    1,734
Diesel/#2 fuel                           1,773   1,173    4,594    4,043  1,488   1,479     4,396    4,762
Asphalt                                    334     238      723      514    422     331       983      689
Petrochemicals and industrial products   1,012     570    2,503    1,653    789     662     2,214    1,915
Lubricants and waxes                       188     157      517      448     77      67       214      194
                                        ------  ------  -------  -------  -----   -----    ------   ------
   Total refined product sales           8,865   6,482   23,522   18,836  7,131   7,097    20,432   20,566
Other sales                                 14      20       78       63
                                        ------  ------  -------  -------  -----   -----    ------   ------
   Total sales                          $8,879  $6,502  $23,600  $18,899  7,131   7,097    20,432   20,566
                                        ======  ======  =======  =======  =====   =====    ======   ======
</TABLE>

            Equity in earnings of affiliates. The table below shows the changes
during the three months and nine months ended September 30, 2004 compared to the
same periods in 2003 in the equity in earnings of affiliates. The increase in
LYONDELL-CITGO's earnings in the third quarter and the first nine months of 2004
as compared to the same periods in 2003 was due primarily to higher margins on
crude oil refining and aromatics. LYONDELL-CITGO also benefited from higher
crude processing rates in the first nine months of 2004 as compared to the same
period in 2003.

<TABLE>
<CAPTION>
                               THREE MONTHS                NINE MONTHS
                                  ENDED                       ENDED
                               SEPTEMBER 30,   INCREASE    SEPTEMBER 30,   INCREASE
                              --------------   (DECREASE)  -------------   (DECREASE)
                              2004      2003   OVER 2003   2004     2003   OVER 2003
                              ----      ----   ---------   ----     ----   ---------
                                               ($ in millions)
<S>                         <C>        <C>        <C>     <C>      <C>     <C>
LYONDELL-CITGO              $      58  $  26      $   32  $   134  $  57   $  77
Pipeline investments               10     10           -       29     26       3
Other                               3     (1)          4        3     (3)      6
                            ---------  -----      ------  -------  -----   -----
   Total                    $      71  $  35      $   36  $   166  $  80   $  86
                            =========  =====      ======  =======  =====   =====
</TABLE>

                                       20
<PAGE>

            Cost of sales and operating expenses. The following table summarizes
our cost of sales and operating expenses for the three-month and nine-month
periods ended September 30, 2004 and 2003:

                   CITGO COST OF SALES AND OPERATING EXPENSES

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED    NINE MONTHS ENDED
                                                 SEPTEMBER 30,         SEPTEMBER 30,
                                               ------------------  ---------------------
                                                2004      2003      2004          2003
                                                ----      ----      ----          ----
                                                          ($ in millions)
<S>                                            <C>       <C>       <C>        <C>
Crude oil                                      $ 2,502   $ 1,724   $  6,417   $    5,110
Refined products                                 4,749     3,577     12,830       10,409
Intermediate feedstocks                            739       481      1,991        1,420
Refining and manufacturing costs                   378       323      1,123          963
Other operating costs and expenses                 164       162        432          382
                                               -------   -------   --------   ----------
  Total cost of sales and operating expenses   $ 8,532   $ 6,267   $ 22,793   $   18,284
                                               =======   =======   ========   ==========
</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 56% and 57% of total cost of sales and
operating expenses for the third quarter of 2004 and 2003, respectively, and 56%
and 57% of total cost of sales for the nine month periods ended September 30,
2004 and 2003, 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".)

            Gross margin. Gross margin increased approximately 1.6 cents per
gallon in the quarter ended September 30, 2004 compared to the same period in
2003 and one cent per gallon in the nine months ended September 30, 2004
compared to the same period in 2003. Gross margin for the quarter ended
September 30, 2004 was approximately 4.9 cents per gallon compared to gross
margin of approximately 3.3 cents per gallon for the same period in 2003. Gross
margin for the nine months ended September 30, 2004 was approximately 4.0 cents
per gallon compared to the gross margin of approximately 3.0 cents per gallon
for the same period in 2003.

            Revenue per gallon for the third quarter 2004 increased
approximately 36% compared to the third quarter 2003 and increased approximately
26% for the first nine months of 2004 compared to the first nine months of 2003.
Cost of sales and operating expenses per gallon for the quarter ended September
30, 2004 increased approximately 35% compared to the same period in 2003 and for
the nine months ended September 30, 2004 increased approximately 25% compared to
the same period in 2003.

            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.

            Our 48% increase in gross margin for the third quarter of 2004
versus the third quarter of 2003 compares to the 63% increase in the industry
heavy crack spread over the same period. Gross margin for the nine months ended
September 30, 2004 increased 33% over the same period for 2003. Although
industry heavy crack spreads during the first nine months of 2004 were 47%
higher than 2003, we did not capture the full benefit of improved

                                       21
<PAGE>

industry margins in the nine months ended September 30, 2004 due to the heavy
turnaround activities at our fuels refineries during the first quarter of 2004.

            Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $3 million, or 4% from $81 million in the
third quarter of 2003 to $78 million in the third quarter of 2004. Selling,
general and administrative expenses increased $1 million, from $218 million in
the first nine months of 2003 to $219 million in the first nine months of 2004.

            Interest expense. Interest expense, including capital lease interest
charge, decreased $2 million in the three-month period ended September 30, 2004
as compared to the same period in 2003 and increased $10 million in the
nine-month period ended September 30, 2004 as compared to the same period in
2003. The decrease in interest expense for the quarter is due to the retirement
of the senior secured term loan during the second quarter of 2004. The increase
in the nine-month period ended September 30, 2004 was primarily due to the net
increase in the average outstanding debt balance and higher overall interest
rates resulting from the issuance in February 2003 of the $550 million 11-3/8%
senior notes and the closing of the $200 million secured term loan which was
based on a floating rate. In addition, a $4 million prepayment penalty,
included in interest expense, was paid in the second quarter of 2004 in
connection with the early retirement of the senior secured term loan.

LIQUIDITY AND CAPITAL RESOURCES

            The following summarizes cash flows during the nine-month periods
ended September 30, 2004 and 2003:

<TABLE>
<CAPTION>
                                             Nine Months Ended
                                               September 30,
                                            -------------------
                                              2004       2003
                                              ----       ----
                                             ($ in millions)
<S>                                         <C>        <C>
Net cash provided by/(used in):
   Operating activities                     $   697    $   846
   Investing activities                     $  (242)   $  (332)
   Financing activities                     $  (187)   $  (416)
</TABLE>

Cash Provided by Operating Activities

         Consolidated net cash provided by operating activities totaled
approximately $697 million for the nine-month period ended September 30, 2004.
Operating cash flows were derived primarily from net income of $430 million,
depreciation and amortization of $270 million, distributions in excess of equity
in earnings of affiliates of $76 million, decrease in deferred taxes of $4
million, and changes in operating assets and liabilities of $(92) million. The
more significant changes in operating assets and liabilities include an increase
in notes and accounts receivable and an increase in noncurrent assets offset, in
part, by an increase in current liabilities and an increase in income taxes
payable.

                                       22
<PAGE>

Cash Used in Investing Activities

            Net cash used in investing activities in the nine month period ended
September 30, 2004 totaled $243 million consisting primarily of capital
expenditures of $227 million. These capital expenditures consisted of:

<TABLE>
<CAPTION>
                                             Nine Months Ended
                                             September 30, 2004
                                             ------------------
                                              ($ in millions)
<S>                                          <C>
Regulatory requirements                            $  76
Maintenance capital projects                          64
Strategic capital expenditures                        87
                                                   -----
   Total capital expenditures                      $ 227
                                                   =====
</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, 2003 for additional information concerning projected
capital expenditures.

Cash Used in Financing Activities

            Net cash used in financing activities totaled $187 million for the
nine-month period ended September 30, 2004, consisting primarily of the early
retirement of the senior secured term loan of $200 million, the payment of $20
million on master shelf agreement notes and $25 million on taxable bonds. These
payments were offset by proceeds of approximately $62 million from the issuance
of tax-exempt bonds.

            As of September 30, 2004, capital resources available to us included
cash on hand totaling $470 million generated by operations and other sources,
and available borrowing capacity under our committed bank facilities of $256
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 $540 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.
CITGO will record, as charges to interest expense in the fourth quarter of 2004,
a $121.9 million tender premium, $10.6 million unamortized fees and $2.7 million
unamortized discounts. However, this transaction will reduce annual interest
expense by approximately $50 million and our weighted average cost of fixed rate
borrowing was reduced from 8.8% to 6.7%. In addition, this transaction removes
the restrictive covenants provided for in the $550 million 11-3/8% senior notes.

            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;

                                       23
<PAGE>

      -     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 September 30, 2004.

            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, including the issuance of debt securities. 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 September 30, 2004 and December 31, 2003, there was
no outstanding balance on these notes.

            Our debt ratings, as currently assessed by the three major debt
rating agencies, are as follows:

<TABLE>
<CAPTION>
                                       Unsecured
                                       ---------
<S>                                    <C>
Moody's Investor's Services              Ba2
Standard & Poor's Ratings Group          BB
Fitch Investors Services, Inc.           BB
</TABLE>

            On February 28, 2003, 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 $275 million in accounts
receivable may be sold at any one time. As of September 30, 2004, 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.

                                       24
<PAGE>

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

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
applicable provisions of FIN 46R had no impact on financial position or results
of operations for the nine-month period ended September 30, 2004 and CITGO
expects that the application of FIN 46R will not have a material impact on its
financial position or results of operations in the future.

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
September 30, 2004, 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 September 30, 2004, CITGO's total crude and refined products
inventory was 46 million barrels. Aggregate commodity derivative positions
entered into for price risk management purposes at that date totaled 1.5 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 manages a portion of its price risk by entering into petroleum
commodity derivatives. Generally, CITGO's risk management strategies qualified
as hedges through December 31, 2000. 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 September 30, 2004 none of the Company's commodity
derivatives were accounted for as hedges.

                                       25
<PAGE>

                              NON TRADING COMMODITY DERIVATIVES
                              OPEN POSITIONS AT SEPTEMBER 30, 2004

<TABLE>
<CAPTION>
                                                     MATURITY   NUMBER OF     CONTRACT     MARKET
   COMMODITY                 DERIVATIVE                DATE     CONTRACTS      VALUE       VALUE(3)
   ---------                 ----------              --------   -----------   --------     --------
                                                                Long/(Short)    Asset/(Liability)
                                                                              ----------------------
                                                                                 ($ in millions)
<S>                   <C>                            <C>        <C>           <C>          <C>
No Lead Gasoline (1)  Listed Put Options Purchased     2004          225      $      -     $      -
                      Listed Put Options Sold          2004         (450)     $      -     $      -
                      Listed Call Options Purchased    2004          200      $      -     $      -
                      Forward Purchase Contracts       2004        3,967      $  216.3     $  216.8
                      Forward Sales Contracts          2004       (2,365)     $ (131.7)    $ (132.2)

Distillates (1)       Futures Purchased                2004          938      $   45.0     $   54.6
                      Futures Purchased                2005        1,159      $   52.7     $   63.5
                      Futures Sold                     2004         (150)     $   (8.0)    $   (8.7)
                      Forward Purchase Contracts       2004        1,352      $   78.2     $   80.2
                      Forward Sale Contracts           2004       (2,521)     $ (133.3)    $ (143.5)
                      Forward Sale Contracts           2005       (1,153)     $  (54.9)    $  (64.4)

Crude Oil (1)         Listed Put Options Purchased     2004          600      $      -     $    0.3
                      Listed Put Options Sold          2004         (400)     $      -     $      -
                      Forward Purchase Contracts       2004          336      $   13.4     $   14.1
                      Forward Sale Contracts           2004         (270)     $  (12.5)    $  (13.4)

Natural Gas (2)       Futures Purchased                2004           24      $    1.5     $    1.7
                      Listed Call Options Purchased    2004          100      $      -     $      -
                      Listed Put Options Sold          2004         (100)     $      -     $      -
</TABLE>

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

(2) Ten-thousands of mmbtu

(3) Based on actively quoted prices.

                                       26
<PAGE>

                       NON TRADING COMMODITY DERIVATIVES
                      OPEN POSITIONS AT SEPTEMBER 30, 2003

<TABLE>
<CAPTION>
                                                             MATURITY   NUMBER OF    CONTRACT     MARKET
   COMMODITY                 DERIVATIVE                        DATE     CONTRACTS     VALUE       VALUE(4)
   ---------                 ----------                      --------  ------------  --------     --------
                                                                       Long/(Short)    Asset/(Liability)
                                                                       ------------  ----------------------
                                                                                        ($ in millions)
<S>                   <C>                                    <C>       <C>           <C>          <C>
No Lead Gasoline (1)  Futures Purchased                       2003          452      $    14.8   $    15.3
                      Futures Sold                            2003         (450)     $   (14.7)  $   (15.2)
                      Forward Purchase Contracts              2003        6,745      $   223.8   $   223.1
                      Forward Sale Contracts                  2003       (5,203)     $  (174.3)  $  (171.1)

Distillates (1)       Futures Purchased                       2003        1,551      $    49.9   $    51.8
                      Futures Purchased                       2004        1,457      $    45.5   $    47.3
                      Futures Sold                            2003          (75)     $    (2.5)  $    (2.5)
                      OTC Call Options Purchased              2003           12      $       -   $       -
                      OTC Put Options Purchased               2003           12      $       -   $     0.1
                      OTC Call Options Sold                   2003          (12)     $       -   $    (0.1)
                      OTC Put Options Sold                    2003          (12)     $       -   $       -
                      OTC Swaps (Pay Fixed/Receive Float)(3)  2003            3      $       -   $       -
                      Forward Purchase Contracts              2003          675      $    21.2   $    21.8
                      Forward Sale Contracts                  2003         (965)     $   (31.4)  $   (31.9)

Crude Oil (1)         OTC Swaps (Pay Fixed/Receive Float)(3)  2003          900      $       -   $     0.1
                      OTC Swaps (Pay Float/Receive Fixed)(3)  2003       (1,100)     $       -   $     0.2
                      Forward Purchase Contracts              2003        1,550      $    40.2   $    43.0
                      Forward Sale Contracts                  2003       (1,032)     $   (28.3)  $   (29.9)

Natural Gas (2)       Listed Call Options Purchased           2003          100      $       -   $       -
                      Listed Put Options Sold                 2003         (100)     $       -   $       -

</TABLE>

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

(2) Ten-thousands of mmbtu

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

(4) Based on actively quoted prices.

                                       27
<PAGE>

            Debt Related Instruments. We have fixed and floating U.S. currency
denominated debt. We use interest rate swaps to manage our debt portfolio toward
a benchmark of 40 to 70 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 our long-term costs. At September 30, 2004 and 2003, our
primary exposures were to LIBOR and floating rates on tax exempt bonds.

            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 SEPTEMBER 30, 2004 AND 2003

<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 are recorded in other
income (expense). The fair value of the interest rate swap agreements in place
at September 30, 2004, based on the estimated amount that we would receive or
pay to terminate the agreements as of that date and taking into account current
interest rates, was a loss of $1 million, the offset of which is recorded in the
balance sheet caption other current liabilities.

                                       28
<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 SEPTEMBER 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        5.58%
      2008                     25         7.17%             20        5.86%
   Thereafter                 745        10.40%            215        7.08%
                       ----------        -----           -----        ----
     Total             $    1,043         9.79%          $ 247        6.91%
                       ==========        =====           =====        ====
   Fair Value          $    1,229                        $ 247
                       ==========                        =====
</TABLE>

                                DEBT OBLIGATIONS
                             AT SEPTEMBER 30, 2003

<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>
      2003             $      11          9.30%         $   -            -
      2004                    31          8.02%             -            -
      2005                    11          9.30%             -            -
      2006                   201          8.10%           200         7.41%
      2007                    50          8.94%             -            -
   Thereafter                770         10.30%           178         9.39%
                       ---------         -----          -----         ----
     Total             $   1,074          9.74%         $ 378         8.34%
                       =========         =====          =====         ====
   Fair Value          $   1,166                        $ 378
                       =========                        =====
</TABLE>

                                       29
<PAGE>

ITEM 4.  CONTROLS AND PROCEDURES

            During the third quarter of 2004, 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, 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. The Company's controls and procedures can only provide
reasonable, not absolute, assurance that the above objectives have been met.
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 September 30, 2004, these officers (principal
executive officer and principal financial officer) concluded that the Company's
disclosure controls and procedures were effective to accomplish their
objectives.

                                       30
<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 September 30, 2004
             filed by the following officers:

             31.1  Filed by Luis Marin, President and Chief Executive
                   Officer.

             31.2  Filed by Larry E. Krieg, Vice President Finance (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 September 30, 2004 filed by the
             following officers:

             32.1  Filed by Luis Marin, President and Chief Executive
                   Officer.

             32.2  Filed by Larry E. Krieg, Vice President Finance (chief
                   financial officer).

                                       31
<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: November 8, 2004                     /s/     Larry E. Krieg
                                           ----------------------------------
                                                   Larry E. Krieg
                                                Vice President Finance
                                             (principal financial officer)

                                       32
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibits                           Description
--------                           -----------
<S>         <C>
31.1        Filed by Luis Marin, President and Chief Executive Officer.

31.2        Filed by Larry E. Krieg, Vice President Finance (chief financial
            officer).

32.1        Filed by Luis Marin, President and Chief Executive Officer.

32.2        Filed by Larry E. Krieg, Vice President Finance (chief financial
            officer).
</TABLE>