<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, 2001

                                       OR

[ ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
               For the transition period from ________ to _______

                         COMMISSION FILE NUMBER 1-14380

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


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

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

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


                                      N. A.
--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)


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

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


         COMMON STOCK, $1.00 PAR VALUE                     1,000
         -----------------------------                     -----
                     (Class)                 (outstanding at October 31, 2001)


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


<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, 2001

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


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

PART I.       FINANCIAL INFORMATION

   Item 1.    Financial Statements (Unaudited)

              Condensed Consolidated Balance Sheets - September 30, 2001 and December 31, 2000....................2

              Condensed Consolidated Statements of Income and Comprehensive Income -
              Three and Nine-Month Periods Ended September 30, 2001 and 2000......................................3

              Condensed Consolidated Statement of Shareholder's Equity - Nine-Month Period
              Ended September 30, 2001............................................................................4

              Condensed Consolidated Statements of Cash Flows - Nine-Month Periods Ended
              September 30, 2001 and 2000.........................................................................5

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

   Item 2.    Management's Discussion and Analysis of Financial Condition and
              Results of Operations..............................................................................14

   Item 3.    Quantitative and Qualitative Disclosures About Market Risk.........................................20

PART II.       OTHER INFORMATION

   Item 1.    Legal Proceedings..................................................................................25

   Item 6.    Exhibits and Reports on Form 8-K...................................................................25

SIGNATURES.......................................................................................................26
</Table>



<PAGE>



                  FACTORS AFFECTING FORWARD LOOKING STATEMENTS


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


                                       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,
                                                                        2001                2000
                                                                     (UNAUDITED)
                                                                    -------------       ------------
<S>                                                                 <C>                 <C>
ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                         $      28,550       $     17,777
  Accounts receivable, net                                              1,038,472          1,307,837
  Due from affiliates                                                      21,658             37,622
  Inventories                                                           1,052,071            987,810
  Prepaid expenses and other                                               15,719              5,768
                                                                    -------------       ------------
            Total current assets                                        2,156,470          2,356,814

PROPERTY, PLANT AND EQUIPMENT - Net                                     2,718,181          2,756,189

INVESTMENTS IN AFFILIATES                                                 685,703            688,863

OTHER ASSETS                                                              208,388            196,312
                                                                    -------------       ------------

                                                                    $   5,768,742       $  5,998,178
                                                                    =============       ============

LIABILITIES AND SHAREHOLDER'S EQUITY

CURRENT LIABILITIES:
  Short-term bank loans                                             $      64,000       $     37,500
  Accounts payable                                                        645,491            843,057
  Payables to affiliates                                                  339,695            524,288
  Taxes other than income                                                 180,610            210,986
  Other                                                                   223,664            283,654
  Current portion of long-term debt                                        85,071             47,078
  Current portion of capital lease obligation                              19,274             26,649
                                                                    -------------       ------------
            Total current liabilities                                   1,557,805          1,973,212

LONG-TERM DEBT                                                          1,060,198          1,000,175

CAPITAL LEASE OBLIGATION                                                   57,421             67,322

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS                               216,713            206,339

OTHER NONCURRENT LIABILITIES                                              202,454            190,050

DEFERRED INCOME TAXES                                                     628,881            554,626

MINORITY INTEREST                                                          32,546             31,518

COMMITMENTS AND CONTINGENCIES (Note 6)

SHAREHOLDER'S EQUITY:
  Common stock - $1.00 par value, 1,000 shares authorized,
     issued and outstanding                                                     1                  1
  Additional capital                                                    1,305,009          1,305,009
  Retained earnings                                                       711,137            672,291
  Accumulated other comprehensive loss                                     (3,423)            (2,365)
                                                                    -------------       ------------
            Total shareholder's equity                                  2,012,724          1,974,936
                                                                    -------------       ------------

                                                                    $   5,768,742       $  5,998,178
                                                                    =============       ============
</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,
                                                                         ---------------------------   ---------------------------
                                                                            2001           2000           2001           2000
                                                                         ------------   ------------   ------------   ------------
<S>                                                                      <C>            <C>            <C>            <C>
REVENUES:
  Net sales                                                              $  5,088,147   $  5,826,293   $ 15,665,133   $ 16,232,533
  Sales to affiliates                                                          91,303         51,198        222,944        167,458
                                                                         ------------   ------------   ------------   ------------
                                                                            5,179,450      5,877,491     15,888,077     16,399,991
  Equity in earnings of affiliates                                             37,782         27,957         97,803         30,984
  Other income (expense) - net                                                 (7,975)        (1,603)        (6,978)        (1,522)
                                                                         ------------   ------------   ------------   ------------
                                                                            5,209,257      5,903,845     15,978,902     16,429,453

COST OF SALES AND EXPENSES:
  Cost of sales and operating expenses
     (including purchases of $2,074,934, $2,858,919,
     $6,577,985 and $7,729,273 from affiliates)                             4,988,825      5,675,036     15,264,036     15,945,481
  Selling, general and administrative expenses                                 61,225         51,399        172,462        144,034
  Interest expense, excluding capital lease                                    16,529         20,263         52,101         62,402
  Capital lease interest charge                                                 2,157          2,643          6,970          8,376
  Minority interest                                                               957            463          1,028          1,855
                                                                         ------------   ------------   ------------   ------------
                                                                            5,069,693      5,749,804     15,496,597     16,162,148
                                                                         ------------   ------------   ------------   ------------

INCOME BEFORE INCOME TAXES AND CUMULATIVE
   EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                                   139,564        154,041        482,305        267,305

INCOME TAXES                                                                   51,639         54,322        178,459         96,230
                                                                         ------------   ------------   ------------   ------------

INCOME BEFORE CUMULATIVE EFFECT OF
   CHANGE IN ACCOUNTING PRINCIPLE                                              87,925         99,719        303,846        171,075

CUMULATIVE EFFECT, ACCOUNTING FOR DERIVATIVES,
   NET OF RELATED INCOME TAXES OF $7,625                                           --             --         13,000             --
                                                                         ------------   ------------   ------------   ------------

NET INCOME                                                                     87,925         99,719        316,846        171,075
                                                                         ------------   ------------   ------------   ------------

OTHER COMPREHENSIVE INCOME (LOSS):
   Cash flow hedges:
      Cumulative effect, accounting for derivatives, net
         of related income taxes of $(850)                                         --             --         (1,450)            --

      Less: reclassification adjustment for derivative losses included
         in net income, net of related income taxes of $46 and $230                78             --            392             --
                                                                         ------------   ------------   ------------   ------------

OTHER COMPREHENSIVE INCOME (LOSS)                                                  78             --         (1,058)            --
                                                                         ------------   ------------   ------------   ------------

COMPREHENSIVE INCOME                                                     $     88,003   $     99,719   $    315,788   $    171,075
                                                                         ============   ============   ============   ============
</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
                                                                                       OTHER
                                       COMMON STOCK      ADDITIONAL    RETAINED    COMPREHENSIVE
                                      SHARES  AMOUNT      CAPITAL      EARNINGS        LOSS             TOTAL
                                      ------  ------    -----------   ----------   -------------     -----------
<S>                                   <C>     <C>       <C>           <C>          <C>               <C>
BALANCE, DECEMBER 31, 2000                 1  $    1    $ 1,305,009   $  672,291     $  (2,365)      $ 1,974,936

Net Income                                --      --             --      316,846            --           316,846

Other comprehensive income (loss)         --      --             --           --        (1,058)           (1,058)

Dividends paid                            --      --             --     (278,000)           --          (278,000)
                                      ------  ------    -----------   ----------     ---------       -----------

BALANCE, SEPTEMBER 30, 2001                1  $    1    $ 1,305,009   $  711,137     $  (3,423)      $ 2,012,724
                                      ======  ======    ===========   ==========     =========       ===========
</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,
                                                                  ---------------------------
                                                                     2001             2000
                                                                  ----------       ----------
<S>                                                               <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES                              $  316,395       $  403,857
                                                                  ----------       ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                              (115,425)         (76,386)
  Proceeds from sales of property, plant and equipment                   767            4,129
  Decrease in restricted cash                                             --            3,015
  Investments in LYONDELL-CITGO Refining LP                          (19,900)         (10,700)
  Loans to LYONDELL-CITGO Refining LP                                     --           (7,024)
  Investments in and advances to other affiliates                       (304)         (15,500)
                                                                  ----------       ----------
            Net cash used in investing activities                   (134,862)        (102,466)
                                                                  ----------       ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from (repayments of) short-term bank loans             26,500          (16,000)
  Net proceeds from (repayments of) revolving bank loans             103,350         (345,000)
  Proceeds from issuance of tax-exempt bonds                          25,000               --
  Payments on taxable bonds                                          (25,000)              --
  Payments of capital lease obligations                              (17,276)          (7,954)
  Repayments of other debt                                            (5,334)          (5,334)
  Dividends paid                                                    (278,000)              --
                                                                  ----------       ----------
            Net cash used in financing activities                   (170,760)        (374,288)
                                                                  ----------       ----------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                      10,773          (72,897)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                        17,777           95,780
                                                                  ----------       ----------

CASH AND CASH EQUIVALENTS, END OF PERIOD                          $   28,550       $   22,883
                                                                  ==========       ==========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the period for:
        Interest, net of amounts capitalized                      $   56,473       $   62,220
                                                                  ==========       ==========
        Income taxes, net of refund of $15,008 in 2000            $  186,141       $   28,971
                                                                  ==========       ==========
</Table>


See notes to condensed consolidated financial statements.


                                       5
<PAGE>


CITGO PETROLEUM CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000
--------------------------------------------------------------------------------

1. BASIS OF PRESENTATION

      The financial information for CITGO Petroleum Corporation ("CITGO" or "the
      Company") subsequent to December 31, 2000 and with respect to the interim
      three-month and nine-month periods ended September 30, 2001 and 2000 is
      unaudited. In the opinion of management, 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, 2001 and 2000 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, 2000 on Form 10-K, dated
      March 21, 2001, for additional information.

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

2. CHANGE IN ACCOUNTING PRINCIPLE

      On January 1, 2001 the Company adopted Statement of Financial Accounting
      Standards No. 133, "Accounting for Derivative Instruments and Hedging
      Activities" ("SFAS No. 133"). The statement, as amended, establishes
      accounting and reporting standards for derivative instruments and for
      hedging activities. It requires that an entity recognize all derivatives,
      at fair value, as either assets or liabilities in the statement of
      financial position with an offset either to shareholder's equity and
      comprehensive income or income depending upon the classification of the
      derivative. Certain of the derivative instruments identified at January 1,
      2001, under the provisions of SFAS No. 133 had been previously designated
      in hedging relationships that addressed the variable cash flow exposure of
      forecasted transactions; under the transition provisions of SFAS No. 133,
      on January 1, 2001 the Company recorded an after-tax,
      cumulative-effect-type transition charge of $1.5 million to accumulated
      other comprehensive income related to these derivatives. Certain of the
      derivative instruments identified at January 1, 2001, under the provisions
      of SFAS No. 133 had been previously designated in hedging relationships
      that addressed the fair value of certain forward purchase and sale
      commitments; under the transition provisions of SFAS No. 133, on January
      1, 2001 the Company recorded fair value adjustments to the subject
      derivatives and related commitments resulting in the recording of a net
      after-tax, cumulative-effect-type transition charge of $0.2 million to net
      income. The remaining derivatives identified at January 1, 2001 under the
      provisions of SFAS No. 133, consisting of certain forward purchases and
      sales, had not previously been considered derivatives under accounting
      principles generally accepted in the United States of America; under the
      transition provisions of SFAS No. 133, on January 1, 2001 the Company
      recorded an after-tax, cumulative-effect-type transition benefit of $13.2
      million to net income related to these derivatives.

      The Company did not elect subsequent hedge accounting for derivatives
      existing at January 1, 2001. Accordingly, all changes in the fair value of
      those derivatives have been recorded in income. Prospectively, the Company
      plans 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.


                                       6
<PAGE>


3. INVENTORIES

      Inventories, primarily at LIFO, consist of the following:

<Table>
<Caption>
                                   SEPTEMBER 30,
                                       2001          DECEMBER 31,
                                    (UNAUDITED)          2000
                                   -------------     ------------
                                          (000'S OMITTED)
<S>                                <C>               <C>
Refined products                   $     800,373     $    748,855
Crude oil                                185,224          175,455
Materials and supplies                    66,474           63,500
                                   -------------     ------------
                                   $   1,052,071     $    987,810
                                   =============     ============
</Table>



4. LONG-TERM DEBT AND FINANCING ARRANGEMENTS

<Table>
<Caption>
                                                                     SEPTEMBER 30,
                                                                         2001            DECEMBER 31,
                                                                      (UNAUDITED)            2000
                                                                     -------------       ------------
                                                                              (000'S OMITTED)
<S>                                                                  <C>                 <C>
Revolving bank loans                                                 $     103,350       $         --

Senior Notes, $200 million face amount, due 2006 with
   interest rate of 7.875%                                                 199,860            199,837

Private Placement Senior Notes, due 2001 to 2006 with
   interest rates from 9.03% to 9.30%                                       96,753             96,753

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

Tax Exempt Bonds, due 2004 to 2031 with variable
   and fixed interest rates                                                334,520            309,520

Taxable Bonds, due 2026 to 2028 with variable interest rates               149,000            174,000

Cit-Con bank credit agreement                                                1,786              7,143
                                                                     -------------       ------------
                                                                         1,145,269          1,047,253
Current portion of long-term debt                                          (85,071)           (47,078)
                                                                     -------------       ------------
                                                                     $   1,060,198       $  1,000,175
                                                                     =============       ============
</Table>


      On May 11, 2001, CITGO renewed its $150 million 364-day revolving bank
loan facility for another term.

      On May 28, 2001, CITGO established an additional $25 million 364-day
revolving bank loan facility.


                                       7
<PAGE>


5. INVESTMENT IN LYONDELL-CITGO REFINING LP

      LYONDELL-CITGO Refining LP ("LYONDELL-CITGO") owns and operates a 265 MBPD
      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 Petroleos de Venezuela, S.A.
      ("PDVSA" which may also be used to refer to one or more of its
      subsidiaries) 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.

      On February 9, 2001, PDVSA notified LYONDELL-CITGO that effective February
      1, 2001, it had declared force majeure under the contract described above.
      Under a force majeure declaration, PDVSA may reduce the amount of crude
      oil that it would otherwise be required to supply under this agreement. If
      PDVSA reduces its delivery of crude oil, LYONDELL-CITGO may be required to
      use alternative sources to obtain its required supply of crude oil, which
      may result in reduced operating margins. As of September 30, 2001, PDVSA
      deliveries of crude oil to LYONDELL-CITGO have not been reduced due to
      PDVSA's declaration of force majeure. It is not possible for CITGO to
      forecast future financial impacts of this force majeure condition on
      LYONDELL-CITGO's costs or the duration of the force majeure.

      CITGO has notes receivable from LYONDELL-CITGO which total $35 million at
      September 30, 2001 and December 31, 2000. The notes bear interest at
      market rates and are due July 1, 2003. These notes are included in other
      assets in the accompanying consolidated balance sheets.

      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.
      Information on CITGO's investment in LYONDELL-CITGO follows:


                                       8
<PAGE>


<Table>
<Caption>
                                      September 30,    December 31,
                                           2001            2000
                                      -------------    ------------
                                       (Unaudited)
                                              (000s omitted)
<S>                                   <C>              <C>
Carrying value of investment          $     515,147    $    518,333
Notes receivable                             35,278          35,278
Participation interest                           41%             41%

Summary of financial position:
   Current assets                     $     292,000    $    310,000
   Non current assets                     1,381,000       1,386,000
   Current liabilities                      436,000         867,000
   Non current liabilities                  776,000         321,000
   Member's equity                          461,000         508,000
</Table>

<Table>
<Caption>
                                      Nine Months Ended September 30,
                                      -------------------------------
                                         2001                2000
                                      -----------         -----------
                                                (Unaudited)
<S>                                   <C>                 <C>
Equity in net income (loss)           $    69,597         $    18,483
Cash distribution received                 92,683              39,874

Summary of operating results:
   Revenue                            $ 2,691,753         $ 2,936,815
   Gross profit                           273,484             155,266
   Net income (loss)                      185,822              66,104
</Table>



      On July 20, 2001, LYONDELL-CITGO completed a refinancing of its working
      capital revolver and its $450 million term bank loan which were scheduled
      to mature on September 14, 2001. The new 18-month term loan and working
      capital revolver will mature in January 2003.


                                       9
<PAGE>


6. COMMITMENTS AND CONTINGENCIES

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

      In May 1997, a fire occurred at CITGO's Corpus Christi refinery. No
      serious personal injuries were reported. There are seventeen related
      lawsuits pending in Corpus Christi, Texas state court against CITGO on
      behalf of approximately 9,000 individuals alleging property damages,
      personal injury and punitive damages. None of these are presently
      scheduled for trial. Approximately 1,300 claims have been resolved for
      immaterial amounts.

      A class action lawsuit is pending in Corpus Christi, Texas state court
      against CITGO which claims damages for reduced value of residential
      properties as a result of alleged air, soil and groundwater contamination.
      CITGO has purchased 275 adjacent properties included in the lawsuit and
      settled those related property damage claims. Over CITGO's objections,
      the trial court has recently ruled that an agreement, that purported to
      provide for settlement of the remaining property damage claims for $5
      million payable by it, is enforceable. CITGO will appeal this decision.

      A lawsuit alleging wrongful death and personal injury filed in 1996
      against CITGO and other industrial facilities in Corpus Christi, Texas
      state court was brought by persons who claim that exposure to refinery
      hydrocarbon emissions have caused various forms of illness. The lawsuit is
      scheduled for trial in 2002.

      Litigation is pending in federal court in Lake Charles, Louisiana against
      CITGO by a number of current and former refinery employees and applicants
      asserting claims of racial discrimination in connection with CITGO's
      employment practices. A trial involving two plaintiffs resulted in
      verdicts for the Company. The Court granted the Company summary judgment
      with respect to another group of claims; these rulings have been affirmed
      by the Fifth Circuit Court of Appeals. Trials of the remaining cases will
      be set in the future.

      CITGO is among defendants to class action and individual lawsuits in North
      Carolina, New York and Illinois alleging contamination of water supplies
      by methyl tertiary butyl ether ("MTBE"), a component of gasoline. These
      actions allege that MTBE poses public health risks and seek testing,
      damages and remediation of the alleged contamination. These matters are in
      early stages of discovery. One of the Illinois cases has been transferred
      to New York and consolidated with the case pending in New York. CITGO has
      denied all of the allegations and is pursuing its defenses.

      In 1999, a group of U.S. independent oil producers filed petitions under
      the U.S. antidumping and countervailing duty laws against imports of crude
      oil from Venezuela, Iraq, Mexico and Saudi Arabia. These laws provide for
      the imposition of additional duties on imports of merchandise if (1) the
      U.S. Department of Commerce ("DOC"), after investigation, determines that
      the merchandise


                                       10
<PAGE>


      has been sold to the United States at dumped prices or has benefited from
      countervailing subsidies, and (2) the U.S. International Trade Commission
      determines that the imported merchandise has caused or threatened material
      injury to the U.S. industry producing like product. The amount of the
      additional duties imposed is generally equal to the amount of the dumping
      margin and subsidies found on the imports on which the duties are
      assessed. No duties are owed on imports made prior to the formal
      initiation of an investigation by the DOC. In 1999, prior to initiation of
      a formal investigation, the DOC dismissed the petitions. In 2000, the U.S.
      Court of International Trade ("CIT") reversed this decision and remanded
      the case to the DOC for reconsideration. In August 2001, the DOC again
      dismissed the petitions. This matter is now pending before the CIT for a
      decision to affirm or remand for further consideration.

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

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

      In 1992, an agreement was reached between the Company and a former owner
      concerning a number of environmental issues which provides in part that
      the former owner will continue to share the costs of certain specific
      environmental remediation and certain tort liability actions based on
      ownership periods and specific terms of the agreement.

      In 1992, the Company reached an agreement with a state agency to cease
      usage of certain surface impoundments at the Company's Lake Charles
      refinery by 1994. A mutually acceptable closure plan was filed with the
      state in 1993. The Company and its former owner are participating in the
      closure and sharing the related costs based on estimated contributions of
      waste and ownership periods. The remediation commenced in December 1993.
      In 1997, the Company presented a proposal to a state agency revising the
      1993 closure plan. In 1998 and 2000, the Company submitted further
      revisions as requested by the state agency. Closure activities have been
      suspended pending a ruling by the state agency on the proposal as amended.

      The Texas Natural Resources Conservation Commission ("TNRCC") conducted
      environmental compliance reviews at the Corpus Christi refinery in 1998
      and 1999. TNRCC has issued Notices of Violation ("NOV") related to each of
      the reviews and has proposed fines of approximately $970,000 based on the
      1998 review and $700,000 based on the 1999 review. The first NOV was
      issued in January 1999 and the second NOV was issued in December 1999.
      Most of the alleged violations refer to recordkeeping and reporting
      issues, failure to meet required emission levels, and failure to properly
      monitor emissions. A hearing on the merits has been scheduled for November
      2001. The Company intends to vigorously contest the alleged violations and
      proposed fines.

      In June 1999, CITGO and numerous other industrial companies received
      notice from the U.S. Environmental Protection Agency, ("EPA") that the EPA
      believes these companies have contributed to contamination in the
      Calcasieu Estuary, in the proximity of Lake Charles, Calcasieu Parish,
      Louisiana and are Potentially Responsible Parties ("PRPs") under the
      Comprehensive Environmental Response, Compensation, and Liability Act
      ("CERCLA"). The EPA made a


                                       11
<PAGE>


      demand for payment of its past investigation costs from CITGO and other
      PRPs and is conducting a Remedial Investigation/Feasibility Study
      ("RI/FS") under its CERCLA authority. CITGO and other PRPs may be
      potentially responsible for the costs of the RI/FS. CITGO disagrees with
      the EPA's allegations and intends to contest this matter.

      In June 1999, a NOV was issued by the EPA alleging violations of the
      National Emission Standards for Hazardous Air Pollutants ("NESHAPS")
      regulations covering benzene emissions from wastewater treatment
      operations at a Lemont, Illinois refinery operated by CITGO. CITGO is in
      settlement discussions with the EPA. At this time, the likelihood of an
      unfavorable outcome and the amount or range of any potential loss cannot
      reasonably be estimated.

      In October 1999, the Louisiana Department of Environmental Quality
      ("LDEQ") issued the Company a NOV and Potential Penalty alleging violation
      of NESHAPS regulations covering benzene emissions from wastewater
      treatment operations at CITGO's Lake Charles, Louisiana refinery and
      requested additional information. The Company is in settlement discussions
      with the LDEQ and anticipates resolving this matter by the end of the year
      for an immaterial amount.

      In January 2001, CITGO received two NOVs from the EPA alleging violations
      of the Federal Clean Air Act ("CAA"). In July 2001, CITGO received an
      additional NOV from the EPA alleging violations of the CAA at the Lemont,
      Illinois refinery. The NOVs are an outgrowth of inspections and formal
      Information Requests regarding the Company's compliance with the CAA. The
      NOVs cover CITGO's Lake Charles, Louisiana and Corpus Christi, Texas
      refineries and a Lemont, Illinois refinery operated by CITGO. For the Lake
      Charles and Lemont facilities, the NOVs allege, among other things,
      violations of the "New Source Review" ("NSR") provisions of the CAA, which
      address installation and permitting of new and modified air emission
      sources. For the Corpus Christi facility, the NOV alleges violations of
      various monitoring, leak detection and repair requirements of the CAA. If
      the Company were to be found to have violated the provisions cited in the
      NOVs, it would be subject to penalties and significant capital
      expenditures for installation or upgrading of pollution control equipment
      or technologies. The likelihood of an unfavorable outcome and the amount
      or range of any potential loss cannot reasonably be estimated at this
      time.

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

      DERIVATIVE COMMODITY AND FINANCIAL INSTRUMENTS - CITGO enters into
      petroleum futures contracts, options and other over-the-counter commodity
      derivatives, primarily to reduce its inventory purchase and product sale
      exposure to market risk. In the normal course of business, CITGO also
      enters into certain petroleum commodity forward purchase and sale
      contracts which qualify as derivatives. At September 30, 2001, the balance
      sheet caption other current liabilities includes a net unrealized loss of
      $13 million related to the fair values of open commodity derivatives.

      CITGO has also entered into various interest rate swaps to manage its risk
      related to interest rate changes on its debt. The fair value of the
      interest rate swap agreements in place at September 30, 2001, based on the
      estimated amount that CITGO would receive or pay to terminate the
      agreements as of that date and taking into account current interest rates,
      was a loss of $3 million, the offset of which is recorded in the balance
      sheet caption other current liabilities. In connection with the


                                       12
<PAGE>


     determination of fair market value, the Company considers the
     creditworthiness of the counterparties, but no adjustment was determined to
     be necessary as a result.

7. RELATED PARTY TRANSACTIONS

     CITGO's largest supplier of crude oil is PDVSA. CITGO has entered into
     long-term crude oil supply agreements with PDVSA with respect to the crude
     oil requirements for each of CITGO's refineries. These crude oil supply
     agreements contain force majeure provisions which entitle PDVSA to reduce
     the quantity of crude oil and feedstocks delivered under the crude oil
     supply agreements under specified circumstances. On February 9, 2001, PDVSA
     notified CITGO that it had declared force majeure, effective February 1,
     2001, under each of the long-term crude oil supply agreements it has with
     CITGO. Under a force majeure declaration, PDVSA may reduce the amount of
     crude oil that it would otherwise be required to supply under these
     agreements. If PDVSA reduces its delivery of crude oil, CITGO may be
     required to use alternative sources to obtain its required supply of crude
     oil, which may result in reduced operating margins.

     As of September 30, 2001, PDVSA's deliveries of crude oil to CITGO have not
     been reduced due to PDVSA's declaration of force majeure. It is not
     possible for CITGO to forecast future financial impacts of this force
     majeure condition on CITGO's costs or the duration of the force majeure.


8. OTHER INFORMATION

     On September 21, 2001, a fire occurred at the hydrocracker unit of the Lake
     Charles refinery. The hydrocracker unit was damaged and operations at other
     processing units were temporarily affected. Operation of the other refinery
     units returned to normal on October 16, 2001. Operations at the
     hydrocracker should resume by mid-November 2001. The Company has insurance
     coverage for this type of an event and has submitted a notice of loss to
     its insurance carriers related to the fire, including a claim under its
     business interruption coverage.

     As a result of this fire, during the quarter ended September 30, 2001, the
     Company recorded property losses and related expenses totaling $8 million
     in Other income (expense), net. The Company records estimated property
     damage insurance recoveries, up to the amount of recorded losses and
     related expenses, when the collection of such amounts is probable. Property
     damage insurance recoveries in excess of the amount of recorded losses and
     related expenses, and business interruption insurance recoveries are not
     recognized until such amounts are realized. Since recorded losses and
     related expenses do not exceed policy deductibles, no insurance recoveries
     related to this incident were recorded during the quarter ended September
     30, 2001.


                                       13
<PAGE>


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

OVERVIEW

         The following discussion of the financial condition and results of
operations of CITGO should be read in conjunction with the unaudited condensed
consolidated financial statements of CITGO included elsewhere herein. Reference
is made to CITGO's Annual Report for the fiscal year ended December 31, 2000 on
Form 10-K, dated March 21, 2001, for additional information and a description of
factors which may cause substantial fluctuations in the earnings and cash flows
of CITGO.

         In the quarter ended September 30, 2001, CITGO generated net income of
$87.9 million on revenue of $5.2 billion compared to net income of $99.7 million
on revenue of $5.9 billion for the same period last year. In the nine months
ended September 30, 2001, CITGO generated net income of $316.8 million on
revenue of $16.0 billion compared to net income of $171.1 million on revenue of
$16.4 billion for the same period last year. (See "Gross margin").

RESULTS OF OPERATIONS

         The following table summarizes the sources of CITGO's sales revenues
and sales volumes for the three-month and nine-month periods ended September 30,
2001 and 2000:


                        CITGO SALES REVENUES AND VOLUMES

<Table>
<Caption>
                                                 THREE                  NINE                     THREE                NINE
                                              MONTHS ENDED           MONTHS ENDED             MONTHS ENDED         MONTHS ENDED
                                              SEPTEMBER 30,          SEPTEMBER 30,            SEPTEMBER 30,        SEPTEMBER 30,
                                         ----------------------  ----------------------   --------------------  -------------------
                                           2001          2000      2001          2000       2001        2000      2001       2000
                                         --------      --------  --------      --------   --------    --------  --------   --------
                                             ($ in millions)         ($ in millions)           (MM gallons)         (MM gallons)
<S>                                      <C>           <C>       <C>           <C>        <C>         <C>       <C>        <C>
Gasoline                                 $  3,069      $  3,364  $  9,282      $  9,460      3,717       3,559    10,239     10,350
Jet fuel                                      426           523     1,364         1,457        556         576     1,693      1,758
Diesel/#2 fuel                                999         1,168     3,192         3,292      1,353       1,310     4,074      4,028
Asphalt                                       192           201       378           414        365         293       710        614
Petrochemicals and industrial products        324           472     1,174         1,324        510         547     1,617      1,654
Lubricants and waxes                          156           139       451           411         74          66       216        208
                                         --------      --------  --------      --------   --------    --------  --------   --------
        Total refined product sales         5,166         5,867    15,841        16,358      6,575       6,351    18,549     18,612
Other sales and adjustments                    13            10        47            42
                                         --------      --------  --------      --------   --------    --------  --------   --------
        Total sales                      $  5,179      $  5,877  $ 15,888      $ 16,400      6,575       6,351    18,549     18,612
                                         ========      ========  ========      ========   ========    ========  ========   ========
</Table>


                                       14
<PAGE>


         The following table summarizes CITGO's cost of sales and operating
expenses for the three-month and nine-month periods ended September 30, 2001 and
2000:


                 CITGO COST OF SALES AND OPERATING EXPENSES

<Table>
<Caption>
                                                                     THREE                       NINE
                                                                  MONTHS ENDED                MONTHS ENDED
                                                                  SEPTEMBER 30,               SEPTEMBER 30,
                                                             ----------------------      ----------------------
                                                               2001          2000          2001          2000
                                                             --------      --------      --------      --------
                                                                 ($ in millions)              ($ in millions)
<S>                                                          <C>           <C>           <C>           <C>
Crude oil                                                    $  1,112      $  1,437      $  3,322      $  3,895
Refined products                                                3,060         3,471         9,605         9,913
Intermediate feedstocks                                           318           365           966         1,015
Refining and manufacturing costs                                  225           217           716           648
Other operating costs, expenses and inventory changes             274           185           655           474
                                                             --------      --------      --------      --------
       Total cost of sales and operating expenses            $  4,989      $  5,675      $ 15,264      $ 15,945
                                                             ========      ========      ========      ========
</Table>


         Sales revenues and volumes. Sales decreased $698 million, or
approximately 12%, in the three-month period ended September 30, 2001 as
compared to the same period in 2000. This was due to a decrease in average sales
price of 15% partially offset by an increase in sales volume of 4%. Sales
decreased $512 million, or approximately 3%, in the nine-month period ended
September 30, 2001 as compared to the same period in 2000. This was due to a
decrease in average sales price of 3% and a decrease in sales volume of less
than 1%. (See CITGO Sales Revenues and Volumes table above.)

         Equity in earnings of affiliates. Equity in earnings of affiliates
increased by $10 million for the three-month period ended September 30, 2001 and
increased $67 million for the nine-month period ended September 30, 2001 as
compared to the same periods in 2000. The increase was primarily due to the
increase in the earnings of LYONDELL-CITGO. CITGO's share of these earnings
increased $6 million, from $24 million in the third quarter of 2000 to $30
million in the third quarter of 2001 and $52 million, from $18 million in the
first nine months of 2000 to $70 million in the first nine months of 2001.
LYONDELL-CITGO's increased earnings in 2001 are primarily due to higher
refining margins on a year-to-date basis, offset by the impact of higher
natural gas prices and lower crude processing rates during the first quarter
due to an unplanned production unit outage at the refinery. The earnings of
the first nine months of 2000 were impacted by a major planned turnaround
which occurred during the second quarter of 2000.

         Other income (expense). Other income (expense) was $(8) million for the
quarter ended September 30, 2001 as compared to $(2) million for the same period
in 2000. Other income (expense) was $(7) million for the nine months ended
September 30, 2001 as compared to $(2) million for the same period in 2000. The
2001 amounts include property losses and related expenses totaling $8 million,
which resulted from the hydrocracker unit fire at the Lake Charles refinery in
September 2001. (See Note 8 to the condensed consolidated financial statements
included elsewhere herein.)

         Cost of sales and operating expenses. Cost of sales and operating
expenses decreased by $686 million or 12%, in the quarter ended September 30,
2001 as compared to the same period in 2000. Cost of sales and operating
expenses decreased by $681 million or 4%, in the nine months ended September 30,
2001 as compared to the same period in 2000. (See CITGO Cost of Sales and
Operating Expenses table above.)


                                       15
<PAGE>


         CITGO purchases refined products to supplement the production from its
refineries to meet marketing demands and resolve logistical issues. Refined
product purchases represented 61% of total cost of sales and operating expenses
for the third quarter of both 2001 and 2000 and 63% and 62% for the first nine
months of 2001 and 2000, respectively. CITGO estimates that margins on purchased
products, on average, are lower than margins on produced products due to the
fact that CITGO can only receive the marketing portion of the total margin
received on the produced refined products. However, purchased products are not
segregated from CITGO produced products and margins may vary due to market
conditions and other factors beyond the Company's control. As such, it is not
practical to measure the effects on profitability of changes in volumes of
purchased products. In the near term, other than normal refinery turnaround
maintenance, CITGO does not anticipate operational actions or market conditions
which might cause a material change in anticipated purchased product
requirements; however, there could be events beyond the control of CITGO which
impact the volume of refined products purchased. (See also "Factors Affecting
Forward Looking Statements".)

         Gross margin. The gross margin for the three-month period ended
September 30, 2001 was approximately 2.9 cents per gallon, compared to
approximately 3.2 cents per gallon for the same period in 2000. The gross margin
for the nine-month period ended September 30, 2001 was approximately 3.4 cents
per gallon, compared to approximately 2.4 cents per gallon for the same period
in 2000. In the three-month period ended September 30, 2001, both the revenue
per gallon component and the cost per gallon component decreased approximately
15%. As a result, the gross margin decreased approximately three-tenths of a
cent on a per gallon basis in the quarter ended September 30, 2001 compared to
the same period in 2000. In the nine-month period ended September 30, 2001, the
revenue per gallon component decreased approximately 3% while the cost per
gallon component decreased approximately 4%. As a result, the gross margin
increased approximately one cent on a per gallon basis in the nine months ended
September 30, 2001 compared to the same period in 2000. These results reflect
reduced industry wide refining and marketing margins during the third quarter,
while on a year to date basis industry margins are improved over last year. The
reduced margins coupled with lower refinery throughput during the third quarter
2001, due to a fire at the Lake Charles refinery, contributed to CITGO's lower
gross margins reported during the third quarter.

         Selling, general and administrative expenses. Selling, general and
administrative expenses increased from $51 million in the third quarter of 2000
to $61 million in the third quarter of 2001, or 20%. Selling, general and
administrative expenses increased from $144 million in the first nine months of
2000 to $172 million in the same period in 2001, or 20%. The difference is
principally due to an increase in incentive compensation and the start-up
expenses related to an international operation in 2001.

         Interest Expense. Interest expense decreased by $4 million in the
three-month period and $12 million in the nine-month period ended September 30,
2001 as compared to the same periods in 2000. This was primarily due to the
decrease in key interest rates during the third quarter and the lower average
amount outstanding under the revolving and short-term borrowing facilities
during the majority of the first nine months of 2001 which was made possible by
cash flows from operating activities.

LIQUIDITY AND CAPITAL RESOURCES

         For the nine-month period ended September 30, 2001, the Company's
consolidated net cash provided by operating activities totaled approximately
$316 million. Operating cash flows were derived from net income of $317 million,
depreciation and amortization of $185 million and changes in working capital and
other adjustments of $(186) million. The more significant changes in working
capital included the decrease in accounts receivable, including receivables from
affiliates, of approximately $282 million, the increase in inventories of
approximately $64 million and the decrease in accounts payable and other current
liabilities, including payables to affiliates, of approximately $457 million.


                                       16
<PAGE>


         Net cash used in investing activities totaled $135 million for the
nine-month period ended September 30, 2001 consisting primarily of capital
expenditures of $115 million (compared to $76 million for the same period in
2000).

         Net cash used in financing activities totaled $171 million for the
nine-month period ended September 30, 2001 consisting primarily of $278 million
of dividends paid to parent and the payment of capital lease obligations of $17
million, offset by $103 million net proceeds from revolving bank loans and $27
million net proceeds on short-term borrowings.

         On May 28, 2001, CITGO established an additional $25 million 364-day
revolving bank loan facility.

         On May 11, 2001, CITGO renewed its $150 million 364-day revolving bank
loan facility for another term.

         As of September 30, 2001, capital resources available to the Company
included cash generated by operations, available borrowing capacity under
CITGO's committed bank facilities of $472 million and $66 million of uncommitted
short-term borrowing facilities with various banks. Additionally, the remaining
$400 million from CITGO's shelf registration with the Securities and Exchange
Commission for $600 million of debt securities may be offered and sold from time
to time. CITGO management believes that the Company has sufficient capital
resources to carry out planned capital spending programs, including regulatory
and environmental projects in the near term, and to meet currently anticipated
future obligations as they arise. CITGO periodically evaluates other sources of
capital in the marketplace and anticipates that long-term capital requirements
will be satisfied with current capital resources and future financing
arrangements, including the issuance of debt securities. The Company's ability
to obtain such financing will depend on numerous factors, including market
conditions and the perceived creditworthiness of the Company at that time.

         In April 2000, CITGO amended an agreement to sell trade accounts
receivable on an ongoing basis and without recourse. The amendment increased the
amount of such receivables that can be sold to $225 million. The amended
agreement was extended in April 2001 for one year and is renewable for
successive annual terms by mutual agreement. In October 2001, CITGO's current
agreement to sell credit card receivables expired and CITGO chose not to renew
it.

         The Company is in compliance with its obligations under its debt
financing arrangements at September 30, 2001.

NEW ACCOUNTING STANDARDS

      On January 1, 2001 the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). The statement, as amended, establishes accounting
and reporting standards for derivative instruments and for hedging activities.
It requires that an entity recognize all derivatives, at fair value, as either
assets or liabilities in the statement of financial position with an offset
either to shareholder's equity and comprehensive income or income depending upon
the classification of the derivative. Certain of the derivative instruments
identified at January 1, 2001 under the provisions of SFAS No. 133 had been
previously designated in hedging relationships that addressed the variable cash
flow exposure of forecasted transactions; under the transition provisions of
SFAS No. 133, on January 1, 2001 the Company recorded an after-tax,
cumulative-effect-type transition charge of $1.5 million to accumulated other
comprehensive income related to these derivatives. Certain of the derivative
instruments identified at January 1, 2001, under the provisions of SFAS No. 133
had been previously designated in hedging relationships that


                                       17
<PAGE>


addressed the fair value of certain forward purchase and sale commitments; under
the transition provisions of SFAS No. 133, on January 1, 2001 the Company
recorded fair value adjustments to the subject derivatives and related
commitments resulting in the recording of a net after-tax,
cumulative-effect-type transition charge of $0.2 million to net income. The
remaining derivatives identified at January 1, 2001 under the provisions of SFAS
No. 133, consisting of certain forward purchases and sales, had not previously
been considered derivatives under accounting principles generally accepted in
the United States of America; under the transition provisions of SFAS No. 133,
on January 1, 2001 the Company recorded an after-tax, cumulative-effect-type
transition benefit of $13.2 million to net income related to these derivatives.

      The Company did not elect subsequent hedge accounting for derivatives
existing at January 1, 2001. Accordingly, all changes in the fair value of those
derivatives have been recorded in income. Prospectively, the Company plans 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.

      In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS No. 141") which addresses financial accounting and reporting for business
combinations and requires that all business combinations initiated after June
30, 2001 be accounted for under the purchase method. Use of the pooling of
interests method is no longer permitted. The adoption of SFAS No. 141 will not
impact the Company's financial position or results of operations.

      In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") which is fully
effective in fiscal years beginning after December 15, 2001, although certain
provisions of SFAS No. 142 are applicable to goodwill and other intangible
assets acquired in transactions completed after June 30, 2001. SFAS No. 142
addresses financial accounting and reporting for acquired goodwill and other
intangible assets and requires that goodwill and intangibles with an indefinite
life no longer be amortized but instead be periodically reviewed for impairment.
The adoption of SFAS No. 142 will not materially impact the Company's financial
position or results of operations.

      In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143") which
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and (or) the normal operation of a long-lived asset, except for certain
obligations of lessees. This statement is effective for financial statements
issued for fiscal years beginning after June 15, 2002. The Company has not
determined the impact on its financial statements that may result from the
adoption of SFAS No. 143.

      In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS No. 144") which addresses financial accounting and reporting for
the impairment or disposal of long-lived assets by requiring that one accounting
model be used for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired, and by broadening the presentation
of discontinued operations to include more disposal transactions. SFAS No. 144
is effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years. The provisions
of this statement generally are to be applied prospectively; therefore, the
adoption of SFAS No. 144 will not impact the Company's financial position or
results of operations.


                                       18
<PAGE>


PROPOSED ACCOUNTING CHANGE

      The American Institute of Certified Public Accountants has issued a
"Statement of Position" exposure draft on cost capitalization that is expected
to require companies to expense the non-capital portion of major maintenance
costs as incurred. The statement is expected to require that any existing
deferred non-capital major maintenance costs be expensed immediately. This
statement also has provisions which will change the method of determining
depreciable lives. The impact on future depreciation expense is not determinable
at this time. The exposure draft indicates that this change will be required to
be adopted for fiscal years beginning after June 15, 2002, and that the effect
of expensing existing deferred major maintenance costs will be reported as a
cumulative effect of an accounting change in the consolidated statement of
income. At September 30, 2001, the Company had included turnaround costs of $86
million in other assets. Company management has not determined the amount, if
any, of these costs that could be capitalized under the provisions of the
exposure draft.


                                       19
<PAGE>


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Introduction. CITGO has exposure to price fluctuations of crude oil and
refined products as well as fluctuations in interest rates. 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, 2001, CITGO was exposed to the risk of broad market price declines
with respect to a substantial portion of its crude oil and refined product
inventories. The following disclosures do not attempt to quantify the price risk
associated with such commodity inventories.

         Commodity Instruments. CITGO balances its crude oil and petroleum
product supply/demand and manages a portion of its price risk by entering into
petroleum commodity derivatives.


                                       20
<PAGE>

                  NON TRADING COMMODITY DERIVATIVES
                OPEN POSITIONS AT SEPTEMBER 30, 2001

<Table>
<Caption>
                                                                   MATURITY   CONTRACTED       CONTRACT     MARKET
      COMMODITY                        DERIVATIVE                    DATE       VOLUME           VALUE       VALUE
      ---------                        ----------                  --------   ----------       --------     ------
                                                                                                  ($ IN MILLIONS)
                                                                                              --------------------
<S>                   <C>                                          <C>        <C>             <C>          <C>
No Lead Gasoline (1)  Futures Purchased                              2001          740         $   22.8     $ 20.0
                      Futures Sold                                   2001          880         $   24.5     $ 23.8
                      Forward Purchase Contracts                     2001        5,126         $  149.4     $135.5
                      Forward Sale Contracts                         2001        3,856         $  111.6     $100.9

Distillates (1)       Futures Purchased                              2001        1,483         $   45.6     $ 42.1
                      Futures Purchased                              2002        1,184         $   35.7     $ 33.0
                      Futures Purchased                              2003           12         $    0.3     $  0.3
                      Futures Sold                                   2001          959         $   30.5     $ 27.0
                      Futures Sold                                   2002          600         $   18.7     $ 16.8
                      OTC Options Purchased                          2001           10         $     --     $   --
                      OTC Options Sold                               2001           10         $     --     $   --
                      OTC Options Purchased                          2002           30         $     --     $   --
                      OTC Options Sold                               2002           30         $     --     $ (0.1)
                      OTC Swaps (Pay Fixed/Receive Floating)(3)      2001            1         $     --     $   --
                      Forward Purchase Contracts                     2001        1,298         $   38.5     $ 38.0
                      Forward Sale Contracts                         2001        1,321         $   36.7     $ 36.3
                      Forward Sale Contracts                         2002           25         $    0.8     $  0.7

Crude Oil (1)         Futures Purchased                              2001          784         $   21.8     $ 18.4
                      Futures Purchased                              2002          600         $   15.8     $ 14.3
                      Futures Sold                                   2001          240         $    6.9     $  5.6
                      Listed Options Purchased                       2001          394         $     --     $   --
                      Listed Options Sold                            2001          394         $     --     $ (0.3)
                      Forward Purchase Contracts                     2001        4,215         $  114.1     $ 98.6
                      Forward Sale Contracts                         2001        3,711         $  100.5     $ 86.7

Natural Gas (2)       Futures Sold                                   2001           30         $    0.8     $  0.8
                      Futures Sold                                   2002           20         $    0.6     $  0.6
                      OTC Options Purchased                          2001           60         $     --     $ (0.1)
                      OTC Options Sold                               2001           30         $     --     $ (0.5)
                      OTC Options Sold                               2002           11         $     --     $ (0.1)
</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.


                                       21
<PAGE>


                  NON TRADING COMMODITY DERIVATIVES
                OPEN POSITIONS AT SEPTEMBER 30, 2000

<Table>
<Caption>
                                                                      MATURITY   NUMBER OF        CONTRACT     MARKET
      COMMODITY                        DERIVATIVE                       DATE     CONTRACTS        VALUE(2)      VALUE
      ---------                        ----------                     --------   ----------       --------     ------
                                                                                                    ($ IN MILLIONS)
                                                                                                  -------------------
<S>                   <C>                                             <C>        <C>              <C>          <C>
No Lead Gasoline (1)     OTC Crack Swaps (Pay Floating/
                            Receive Fixed)(4)                             2000        1200          $  3.7     $  2.5
                         OTC Crack Swaps (Pay Fixed/
                            Receive Floating)(4)                          2000        1200          $  2.7     $  2.5

Heating Oil (1)          Futures Purchased                                2000         299          $ 10.6     $ 11.6
                         Futures Purchased                                2001         702          $ 23.8     $ 25.8
                         Futures Purchased                                2002           8          $  0.3     $  0.3
                         OTC Crack Swap Options Purchased                 2000         100          $   --     $   --
                         OTC Crack Swap Options Sold                      2000         100          $   --     $ (0.2)
                         OTC Swaps (Pay Floating/Receive Fixed)(4)        2000         100          $  4.3     $  3.9
                         OTC Swaps (Pay Fixed/Receive Floating)(4)        2000           9          $  0.2     $  0.3
                         OTC Swaps (Pay Fixed/Receive Floating)(4)        2001           9          $  0.2     $  0.3
                         OTC Crack Swaps (Pay Floating/
                            Receive Fixed)(4)                             2000        3000          $ 21.6     $ 19.6

Natural Gas (3)          Futures Purchased                                2000          10          $  0.5     $  0.5
</Table>


----------
(1) 1000 barrels per contract
(2) Weighted average price
(3) 10,000 mmbtu per contract
(4) Floating price based on market index designated in contract; fixed price
    agreed upon at date of contract.



                                       22
<PAGE>


         Debt Related Instruments. CITGO has fixed and floating U.S. currency
denominated debt. CITGO uses interest rate swaps to manage its debt portfolio
toward a benchmark of 40 to 60 percent fixed rate debt to total fixed and
floating rate debt. These instruments have the effect of changing the interest
rate with the objective of minimizing CITGO's long-term costs. At September 30,
2001, CITGO's 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, 2001 AND 2000

<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>


         The fair value of the interest rate swap agreements in place at
September 30, 2001, based on the estimated amount that CITGO would receive or
pay to terminate the agreements as of that date and taking into account current
interest rates, was a loss of $3 million.


                                       23
<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, 2001

<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>
          2001                  $  40           9.11%                $  66             3.44%
          2002                     36           8.78%                   18             3.81%
          2003                     61           8.79%                   85             4.45%
          2004                     31           8.02%                   16             5.14%
          2005                     11           9.30%                   --               --
       Thereafter                 381           7.99%                  465             8.14%
                                -----          -----                 -----            -----
         Total                  $ 560           8.23%                $ 650             6.99%
                                =====          =====                 =====            =====

       Fair Value               $ 592                                $ 650
                                =====                                =====
</Table>


                                DEBT OBLIGATIONS
                              AT SEPTEMBER 30, 2000

<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>
          2000                  $  40           9.11%                $   2             7.60%
          2001                     40           9.11%                    7             7.49%
          2002                     36           8.78%                   --               --
          2003                     61           8.79%                   --               --
          2004                     31           8.02%                   16             8.26%
       Thereafter                 391           8.02%                  465             9.47%
                                -----          -----                 -----            -----
         Total                  $ 599           8.29%                $ 490             9.40%
                                =====          =====                 =====            =====
       Fair Value               $ 589                                $ 490
                                =====                                =====
</Table>

                                       24
<PAGE>


                           PART II. OTHER INFORMATION




ITEM 1.  LEGAL PROCEEDINGS

      The required information is incorporated by reference into Part II of this
Report from Note 6 of the Notes to the Condensed Consolidated Financial
Statements included in Part I of this Report.



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K



   (a)   Exhibits

                None.

   (b)   Reports on Form 8-K:

                None.


                                       25
<PAGE>


                                   SIGNATURES



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



                           CITGO PETROLEUM CORPORATION







      Date: November 13, 2001                 /s/ Larry E. Krieg
                                          ----------------------------------
                                                  Larry E. Krieg
                                          Controller (Chief Accounting Officer)



                                       26