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

                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the transition period from _____ to _____
For the Quarterly Period                                        Commission File
Ended June 30, 1998                                             Number 001-10311

                         KANEB PIPE LINE PARTNERS, L.P.
             (Exact name of registrant as specified in its charter)


          DELAWARE                                       75-2287571
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
Incorporation or Organization)

                          2435 North Central Expressway
                             Richardson, Texas 75080
          (Address of principal executive offices, including zip code)

                                 (214) 699-4000
              (Registrant's telephone number, including area code)

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___________

Number of Senior  Preference  Units of the  Registrant  outstanding at August 7,
1998:  7,250,000.  Number of Preference  Units of the Registrant  outstanding at
August 7, 1998: 5,650,000.


<PAGE>

KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

FORM 10-Q
QUARTER ENDED JUNE 30, 1998
--------------------------------------------------------------------------------

                                                                        Page No.
                          Part I. Financial Information

Item 1.     Financial Statements (Unaudited)

            Consolidated Statements of Income - Three and Six Months
               Ended June 30, 1998 and 1997                                   1

            Condensed Consolidated Balance Sheets - June 30, 1998
               and December 31, 1997                                          2

            Condensed Consolidated Statements of Cash Flows - Six
               Months Ended June 30, 1998 and 1997                            3

            Notes to Consolidated Financial Statements                        4

Item 2.     Management's Discussion and Analysis of
               Financial Condition and Results of Operations                  6

                           Part II. Other Information

Item 6.     Exhibits and Reports on Form 8-K                                  10


            Signature                                                         10




<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(In Thousands - Except Per Unit Amounts)
(Unaudited)
--------------------------------------------------------------------------------
 
                                    Three Months Ended        Six Months Ended
                                         June 30,                June 30,
                                   --------------------    --------------------
                                     1998        1997         1998       1997
                                   --------    --------    --------   ---------


Revenues                           $ 30,553    $ 29,793    $ 58,623    $ 58,372
                                   --------    --------    --------    --------

Costs and expenses:
     Operating costs                 12,917      12,557      24,605      24,959
     Depreciation and amortization    3,018       2,920       5,965       5,798
     General and administrative       1,672       1,397       3,207       2,667
                                   --------    --------    --------    --------

       Total costs and expenses      17,607      16,874      33,777      33,424
                                   --------    --------    --------    --------

Operating income                     12,946      12,919      24,846      24,948

Interest and other income, net           39         169          87         275
Interest expense                     (2,760)     (2,849)     (5,467)     (5,703)
                                   --------    --------    --------    --------

Income before minority interest
     and income taxes                10,225      10,239      19,466      19,520
Minority interest in net income        (101)       (100)       (192)       (190)
Income tax provision                    (94)       (190)       (284)       (474)
                                   --------    --------    --------    --------

Net income                           10,030       9,949      18,990      18,856
General partner's interest 
     in net income                     (244)       (100)       (334)       (190)
                                   --------    --------    --------    --------

Limited partners' interest 
     in net income                 $  9,786    $  9,849    $ 18,656    $ 18,666
                                   ========    ========    ========    ========

Allocation of net income per 
    Senior Preference Unit 
    and Preference Unit            $    .61    $    .61    $   1.16    $   1.16
                                   ========    ========    ========    ========

Weighted average number of Partnership units outstanding:
      Senior Preference Units         7,250       7,250       7,250       7,250
                                   ========    ========    ========    ========
      Preference Units                5,650       4,650       5,650       4,650
                                   ========    ========    ========    ========

                 See notes of consolidated financial statements
                                        1

<PAGE>


KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
--------------------------------------------------------------------------------

                                                 June 30,        December 31,
                                                   1998              1997
                                               -----------       ------------
                                               (Unaudited)
               ASSETS

Current assets:
   Cash and cash equivalents                     $    819           $  6,376
   Accounts receivable                             13,247             11,503
   Prepaid expenses                                 3,834              4,021
                                                 --------           --------
     Total current assets                          17,900             21,900
                                                 --------           --------

Property  and equipment                           358,149            345,802
Less accumulated depreciation and amortization    104,320             98,670
                                                 --------           --------
     Net property and equipment                   253,829            247,132
                                                 --------           --------
                                                 $271,729           $269,032
                                                 ========           ========

     LIABILITIES AND PARTNERS' CAPITAL

Current liabilities:
   Current portion of long-term debt             $  5,326          $  2,335
   Accounts payable and accrued expenses           10,868            10,546
   Distributions payable                           10,725            10,725
   Payable to general partner                       1,047             1,143
                                                 --------          --------
     Total current liabilities                     27,966            24,749
                                                 --------          --------

Long-term debt, less current portion              134,000           132,118

Other liabilities and deferred taxes                6,801             6,935

Minority interest                                   1,013             1,034

Commitments and contingencies

Partners' capital                                 101,949           104,196
                                                 --------          --------
                                                 $271,729          $269,032
                                                 ========          ========




                 See notes to consolidated financial statements
                                       2

<PAGE>


KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
--------------------------------------------------------------------------------

                                                     Six Months Ended June 30,
                                                     -------------------------
                                                         1998        1997
                                                      ----------  ----------

Operating activities:
   Net income                                          $ 18,990    $ 18,856
   Adjustments to reconcile net income
     to net cash provided by operating activities:
       Depreciation and amortization                      5,965       5,798
       Minority interest in net income                      192         190
       Deferred income taxes                                292         474
       Changes in working capital components             (1,235)       (946)
                                                       --------    --------

           Net cash provided by operating activities     24,204      24,372
                                                       --------    --------

Investing activities:
   Capital expenditures                                  (5,774)     (5,243)
   Acquisition of terminals                              (6,328)       --
   Other, net                                              (986)      1,390
                                                       --------    --------

           Net cash used in investing activities        (13,088)     (3,853)
                                                       --------    --------

Financing activities:
   Changes in payable to general partner                    (96)        975
   Issuance of long-term debt                             6,000        --
   Payments of long-term debt                            (1,127)       (982)
   Distributions to partners                            (21,450)    (19,666)
                                                       --------    --------

           Net cash used in financing activities        (16,673)    (19,673)
                                                       --------    --------

Increase (decrease) in cash and cash equivalents         (5,557)        846
Cash and cash equivalents at beginning of period          6,376       8,196
                                                       --------    --------

Cash and cash equivalents at end of period             $    819    $  9,042
                                                       ========    ========



                 See notes to consolidated financial statements
                                       3

<PAGE>

KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)
--------------------------------------------------------------------------------
                                                      
1.   SIGNIFICANT ACCOUNTING POLICIES

     The  unaudited   consolidated  financial  statements  of  Kaneb  Pipe  Line
     Partners,  L.P. and its subsidiaries (the  "Partnership") for the three and
     six month  periods  ended  June 30,  1998 and 1997 have  been  prepared  in
     accordance  with  generally  accepted  accounting  principles  applied on a
     consistent  basis.   Significant   accounting   policies  followed  by  the
     Partnership  were  disclosed  in the  notes to the  consolidated  financial
     statements included in the Partnership's Annual Report on Form 10-K for the
     year  ended  December  31,  1997.  In  the  opinion  of  the  Partnership's
     management,  the accompanying consolidated financial statements contain the
     adjustments,  consisting of normal recurring accruals, necessary to present
     fairly the  consolidated  financial  position  of the  Partnership  and its
     consolidated  subsidiaries at June 30, 1998 and the consolidated results of
     their  operations  and cash flows for the  periods  ended June 30, 1998 and
     1997.  Operating  results for the three and six months  ended June 30, 1998
     are not necessarily  indicative of the results that may be expected for the
     year ending December 31, 1998.

2.   NEW ACCOUNTING PRONOUNCEMENT

     The  Partnership  has adopted the  provisions  of  Statement  of  Financial
     Accounting  Standards  No. 130,  "Reporting  Comprehensive  Income,"  which
     establishes standards for the reporting and display of comprehensive income
     and its components in a full set of general purpose  financial  statements.
     There were no items to report  for the three and six months  ended June 30,
     1998 or 1997.

3.   CASH DISTRIBUTIONS

     The  Partnership  makes  quarterly  distributions  of 100% of its Available
     Cash,  as  defined  in the  Partnership  Agreement,  to  holders of limited
     partnership units  ("Unitholders") and the Company. The Partnership expects
     to make  distributions  of Available Cash for each quarter of not less than
     $0.55 per unit (the "Minimum Quarterly Distribution"), or $2.20 per unit on
     an annualized basis, for the foreseeable  future,  although no assurance is
     given regarding such distributions. The cash distribution of $0.65 per unit
     for the  fourth  quarter  of 1997 was made on  February  14,  1998.  A cash
     distribution  of $0.65  for the first  quarter  of 1998 was made on May 15,
     1998.  A cash  distribution  of $0.65 for the  second  quarter  of 1998 was
     declared  to holders of record as of July 31, 1998 and is payable on August
     14,  1998.  As of June 30,  1998,  no  arrearages  existed  on any class of
     Partnership interest.

     The  distribution  of Available Cash for each quarter during the Preference
     Period, as defined, is subject to the preferential rights of the holders of
     the  Senior  Preference  Units  ("SPU") to receive  the  Minimum  Quarterly
     Distribution  for such quarter,  plus any  arrearages in the payment of the
     Minimum Quarterly Distribution for prior quarters,  before any distribution
     of Available  Cash is made to holders of Preference  Units ("PU") or Common
     Units ("CU") for such  quarter.  The CU's are not entitled to arrearages in
     the  payment  of  the  Minimum  Quarterly  Distribution.  In  general,  the
     Preference Period will continue indefinitely until the Minimum Distribution
     has been paid to the  holders  of the SPU's,  the PU's,  the  Preference  B
     Units,  to the  extent  outstanding,  and the CU's for  twelve  consecutive
     quarters.  The Minimum Quarterly  Distribution has been paid to all classes
     of Unitholders for the first quarter of 1998, all four quarters in 1997 and
     1996 and for the quarters ended  September 30 and December 31, 1995.  After
     the Preference  Period ends, all differences and  distinctions  between the
     classes of units for the purposes of cash  distributions  will cease. It is
     anticipated  that the  Preference  Period  will end upon the payment of the
     twelfth consecutive quarterly distribution on August 14, 1998.



<PAGE>

KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition
and Results of Operations
--------------------------------------------------------------------------------

     This  discussion  should  be  read in  conjunction  with  the  consolidated
     financials statements of Kaneb Pipe Line Partners, L.P. (the "Partnership")
     and notes thereto included elsewhere in this report.

     Operating Results:

     Pipeline Operations

                                         Three Months  Ended   Six Months Ended
                                               June 30,            June 30,
                                          -----------------   -----------------
                                            1998     1997       1998      1997
                                          -------   -------   -------   -------
                                                     (in thousands)

          Revenues                        $15,351   $14,999   $29,452   $28,868
          Operating costs                   5,359     5,501    10,761    10,871
          Depreciation and amortization     1,191     1,217     2,377     2,420
          General and administrative          813       728     1,552     1,338
                                          -------   -------   -------   -------
              Operating income            $ 7,988   $ 7,553   $14,762   $14,239
                                          =======   =======   =======   =======

     Pipeline revenues are based on volumes shipped and the distances over which
     such volumes are transported. For the three and six month period ended June
     30, 1998, revenues increased 2%, compared to the same 1997 periods,  due to
     an overall  increase in volumes  shipped,  primarily on the East  Pipeline.
     Total barrel miles  remained  constant at 4.0 billion for each of the three
     month  periods ended June 30, 1998 and 1997,  respectively  and 7.7 billion
     for  each  of  the  six  month  periods  ended  June  30,  1998  and  1997,
     respectively.

     Operating  costs,  which  include  fuel  and  power  costs,  materials  and
     supplies,  maintenance  and  repair  costs,  salaries,  wages and  employee
     benefits,  and  property  and  other  taxes,  decreased  slightly  over the
     comparable  prior year  periods.  General  and  administrative  costs which
     include managerial,  accounting, and administrative personnel costs, office
     rental and expense,  legal and professional  costs and other  non-operating
     costs  increased $0.1 million and $0.2 million for the three and six months
     ended June 30, 1998, respectively, over the comparable 1997 periods.



<PAGE>

     Terminaling Operations


                                         Three Months  Ended   Six Months Ended
                                               June 30,            June 30,
                                          -----------------   -----------------
                                            1998     1997       1998      1997
                                          -------   -------   -------   -------
                                                     (in thousands)

          Revenues                        $15,202   $14,794   $29,171   $29,504
          Operating costs                   7,558     7,056    13,844    14,088
          Depreciation and amortization     1,827     1,703     3,588     3,378
          General and administrative          859       669     1,655     1,329
                                          -------   -------   -------   -------
              Operating income            $ 4,958   $ 5,366   $10,084   $10,709
                                          =======   =======   =======   =======

     In March 1998, the Partnership completed the acquisition of certain liquids
     terminaling assets located in Chicago,  Illinois (the  "Acquisition").  The
     Acquisition,  which included 19 storage tanks with an aggregate capacity of
     752 thousand barrels, was funded with the Partnership's  existing revolving
     credit facility.

     Revenues increased 3% for the three months ended June 30, 1998, compared to
     the same 1997 period,  due primarily to an increase in tank utilization due
     to favorable market  conditions and the Acquisition,  partially offset by a
     decrease in the overall  average price  charged for storage,  primarily the
     result of  variances  in the mix of products  stored.  For the three months
     ended June 30,  1998,  average  annualized  revenues  per barrel of tankage
     utilized  was $4.74,  compared  to $4.81 per barrel for the same prior year
     period.

     Revenues  decreased  slightly for the six months  ended June 30, 1998,  due
     primarily to a decrease in the overall  average  price charged for storage,
     partially  offset by an increase in tankage volumes  utilized.  For the six
     months  ended June 30,  1998,  average  annualized  revenues  per barrel of
     tankage utilized was $4.40 per barrel, compared to $4.84 per barrel for the
     same prior year period. The decrease in the per barrel average is primarily
     a result of the  storage  of a larger  proportionate  volume  of  petroleum
     products in the first six months of 1998,  which are  historically at lower
     per barrel rates than specialty chemicals.  Average annual tankage utilized
     for the six months ended June 30, 1998  increased  to 13.3 million  barrels
     from 12.2 million barrels for the comparable  prior year period,  primarily
     as a result of increased utilization at the Partnership's largest petroleum
     storage facility and the Acquisition.

     For the three months ended June 30, 1998, operating costs increased by $0.5
     million,  when  compared  to the three  months  ended  June 30,  1997,  due
     primarily  to   increased   tankage   utilization,   increases  in  routine
     maintenance  and the  Acquisition.  For the six months ended June 30, 1998,
     operating  expenses  decreased by $0.2  million,  compared to 1997,  as the
     result of variances in the mix of products  stored,  partially offset by an
     increase in tank utilization.  General and  administrative  expense for the
     three and six months ended June 30, 1998, increased slightly, when compared
     to the same period in 1997. Total tankage capacity (18.1 million barrels at
     June 30,  1998) has been,  and is  expected  to  remain,  adequate  to meet
     existing customer storage requirements.  Customers consider factors such as
     location,  access to cost effective  transportation and quality of service,
     in addition to pricing, when selecting terminal storage.

     Financial Condition

     During  the first six months of 1998,  the  Partnership's  working  capital
     requirements for operations,  capital expenditures (excluding acquisitions)
     and cash distributions were funded through the use of internally  generated
     funds.

     Cash provided by operations was $24.2 million and $24.4 million for the six
     months  ended June 30, 1998 and 1997,  respectively.  Capital  expenditures
     (excluding  acquisitions)  were $5.8  million for the six months ended June
     30, 1998,  compared to $5.2 million in 1997.  The  Partnership  anticipates
     that capital  expenditures will total  approximately  $7.0 million to $10.0
     million (excluding acquisitions) for the year ending December 31, 1998.

     The  Partnership  makes  distributions  of  100% of its  Available  Cash to
     Unitholders and the General Partner.  Available Cash consists  generally of
     all cash receipts less all cash  disbursements and reserves.  Distributions
     of $0.65 per unit were declared to all  Unitholders in the first and second
     quarter of 1998 and $2.50 per unit was declared in the calendar year 1997.

     The Partnership  expects to fund future cash  distributions and maintenance
     capital  expenditures  with cash and cash flows from operating  activities.
     Expansionary  capital  expenditures  are  expected  to  be  funded  through
     additional Partnership borrowings.

     Additional information relative to sources and uses of cash is presented in
     the financial statements included in this report.

     Although  the  Partnership   believes  that  most  of  its  activities  and
     operations  are not  materially  impacted  by Year  2000  concerns,  it has
     undertaken  a review and testing of its computer  systems to identify  Year
     2000-related  issues associated with any items of software or hardware used
     in its  business  operations.  Most  of the  software  systems  used by the
     Partnership  are licensed from third parties and are Year 2000 compliant or
     will be upgraded to Year 2000  compliant  releases  over the next year.  At
     this time,  the  Partnership  cannot  assess  the  extent to which  further
     actions will be required, or assess whether this issue will have a material
     effect upon future operations. The Partnership does not anticipate that the
     incremental cost to become fully Year 2000 compliant will be material.

     Allocation of Net Income and Earnings

     Net income is allocated to the limited partnership units in an amount equal
     to the cash  distributions  declared  for  each  reporting  period  and any
     remaining  income or loss is  allocated  to any class of units that did not
     receive the same  amount of cash  distributions  per unit (if any).  If the
     same cash  distributions  per unit are  declared  for all classes of units,
     income  or  loss  is  allocated  pro  rata  on  the  aggregate   amount  of
     distributions declared.

     In 1997,  distributions  by the  Partnership  of Available Cash reached the
     Second Target Distribution,  as defined in the Partnership Agreement, which
     entitled the general  partner to receive certain  incentive  distributions.
     Earnings per SPU and PU shown on the consolidated  statements of income are
     calculated  by dividing  the amount of net income,  allocated  on the above
     basis with incentives calculated on distributions  declared to the SPUs and
     PUs,  by  the  weighted   average  number  of  SPUs  and  PUs  outstanding,
     respectively.  If the  allocation  of income had been made as if all income
     had been distributed in cash, earnings per SPU and PU would have been $0.62
     and  $0.61  for the three  months,  and $1.17 and $1.16 for the six  months
     ended June 30, 1998 and 1997, respectively.



<PAGE>

KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

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

                           PART II - Other Information

Item 6.  Exhibits and Reports on Form 8-K

         (a)   Exhibits.

               4.1   Amended   and   Restated    Agreement   of   Limited
                     Partnership of Kaneb Pipe Line Partners, L.P., dated
                     September 18, 1995, as amended July 23, 1998

              27.    Financial Data Schedule

         (b)  Reports on Form 8-K.  None



                                    Signature


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.



                                               KANEB PIPE LINE PARTNERS, L.P.
                                               (Registrant)

                                               By:   KANEB PIPE LINE COMPANY
                                                     (Managing General Partner)


Date:  August 13, 1998                         Jimmy L. Harrison
                                               Vice President and Controller