<PAGE>   1
================================================================================


                       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 September 30, 1996                                       Number 1-10311

                         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 principle executive offices, including zip code)

                                 (972) 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
                                   -----     -----

================================================================================
<PAGE>   2
KANEB PIPE LINE PARTNERS, L.P.

FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                                                 Page No.
                                                                                                                 --------
<S>         <C>                                                                                                     <C>
                                                  Part I. Financial Information

Item 1.     Financial Statements (Unaudited)

                Consolidated Statements of Income
                   - Three and Nine Months Ended September 30, 1996 and 1995  . . . . . . . . . . . . . . . .       1

                Condensed Consolidated Balance Sheets
                   - September 30, 1996 and December 31, 1995   . . . . . . . . . . . . . . . . . . . . . . .       2

                Condensed Consolidated Statements of Cash Flows
                   - Nine Months Ended September 30, 1996 and 1995  . . . . . . . . . . . . . . . . . . . . .       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  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       8


Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       8
</TABLE>
<PAGE>   3
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS - EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                       Three Months Ended            Nine Months Ended
                                                          September 30,                September 30,
                                                   ---------------------------   -------------------------
                                                       1996           1995           1996         1995
                                                   -------------  ------------   -----------   -----------
<S>                                                <C>           <C>             <C>           <C>
Revenues  . . . . . . . . . . . . . . . . . . . .  $      29,963  $     26,533   $    86,584   $    70,257
                                                   -------------  ------------   -----------   -----------
Costs and expenses:
   Operating costs  . . . . . . . . . . . . . . .         13,042        11,953        37,061        30,222
   Depreciation and amortization  . . . . . . . .          2,740         2,059         8,189         6,220
   General and administrative   . . . . . . . . .          1,349         1,658         4,061         4,229
                                                   -------------  ------------   -----------   -----------
      Total costs and expenses  . . . . . . . . .         17,131        15,670        49,311        40,671
                                                   -------------  ------------   -----------   -----------
Operating income  . . . . . . . . . . . . . . . .         12,832        10,863        37,273        29,586

Other income, net (principally interest)  . . . .            210           214           580           661

Interest expense  . . . . . . . . . . . . . . . .         (2,850)       (1,646)       (8,237)       (4,683)
                                                   -------------  ------------   -----------   ----------- 
Income before minority interest
   and income tax expense   . . . . . . . . . . .         10,192         9,431        29,616        25,564

Minority interest in net income . . . . . . . . .           (102)          (93)         (288)         (250)

Income tax expense  . . . . . . . . . . . . . . .           (218)         (129)         (772)         (348)
                                                   -------------  ------------   -----------   ----------- 
Net income  . . . . . . . . . . . . . . . . . . .          9,872         9,209        28,556        24,966

General partner's interest in net income  . . . .           (102)          (93)         (288)         (250)
                                                   -------------  ------------   -----------   ----------- 
Limited partner's interest in net income  . . . .  $       9,770  $      9,116   $    28,268   $    24,716
                                                   =============  ============   ===========   ===========

Allocation of net income per Senior
   Preference Unit and Preference Unit  . . . . .  $         .61  $        .55   $      1.76   $      1.65
                                                   =============  ============   ===========   ===========

Weighted average number of Partnership
   Units outstanding:

   Senior Preference Units  . . . . . . . . . . .          7,250         7,250         7,250         7,250
                                                   =============  ============   ===========   ===========
   Preference Units   . . . . . . . . . . . . . .          4,650         5,650         4,650         5,650
                                                   =============  ============   ===========   ===========
</TABLE>

                See notes to consolidated financial statements.





                                       1
<PAGE>   4
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                   September 30,       December 31,
                                                                       1996                1995
                                                                   -------------       ------------             
<S>                                                                 <C>                 <C>
                              ASSETS
Current assets:
  Cash and cash equivalents . . . . . . . . . . . . . . . . . . .   $   14,260          $    6,307
  Accounts receivable, trade  . . . . . . . . . . . . . . . . . .        9,765              10,210
  Current portion of receivable from general partner  . . . . . .        1,650               2,571
  Prepaid expenses  . . . . . . . . . . . . . . . . . . . . . . .        2,593               1,254
                                                                    ----------          ----------             
    Total current assets  . . . . . . . . . . . . . . . . . . . .       28,268              20,342
                                                                    ----------          ----------             
Receivable from general partner, less current portion . . . . . .            -                 974
                                                                    ----------          ----------             
Property  and equipment . . . . . . . . . . . . . . . . . . . . .      328,507             323,671
Less accumulated depreciation and amortization  . . . . . . . . .       84,739              77,200
                                                                    ----------          ----------             
     Net property and equipment . . . . . . . . . . . . . . . . .      243,768             246,471
                                                                    ----------          ----------             
                                                                    $  272,036          $  267,787
                                                                                           
                 LIABILITIES AND PARTNERS' CAPITAL                                         
                                                                                           
Current liabilities:                                                                       
   Current portion of long-term debt  . . . . . . . . . . . . . .   $    1,968          $    1,777
   Accounts payable, accrued expenses and                                                  
     distributions payable  . . . . . . . . . . . . . . . . . . .       21,074              17,018
   Deferred terminaling fees  . . . . . . . . . . . . . . . . . .        2,822               2,634
   Payable to general partner . . . . . . . . . . . . . . . . . .          721                 963
                                                                    ----------          ----------             
     Total current liabilities  . . . . . . . . . . . . . . . . .       26,585              22,392
                                                                    ----------          ----------             
Long-term debt, less current portion  . . . . . . . . . . . . . .      134,989             136,489
                                                                    ----------          ----------             
Other liabilities and deferred taxes  . . . . . . . . . . . . . .        7,730               7,160
                                                                    ----------          ----------             
Minority interest . . . . . . . . . . . . . . . . . . . . . . . .        1,008                 998
                                                                    ----------          ----------             
Partners' capital . . . . . . . . . . . . . . . . . . . . . . . .      101,724             100,748
                                                                    ----------          ----------             
                                                                    $  272,036          $  267,787
                                                                    ==========          ==========
</TABLE>

                See notes to consolidated financial statements.





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<PAGE>   5
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                        1996               1995    
                                                                      ---------         ----------
<S>                                                                   <C>                   <C>
Operating activities:
  Net income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . $  28,556         $   24,966
  Adjustments to reconcile net income                                                      
     to net cash provided by operating activities:                                         
      Depreciation and amortization   . . . . . . . . . . . . . . . .     8,189              6,220
      Minority interest in net income   . . . . . . . . . . . . . . .       288                250
      Deferred income taxes   . . . . . . . . . . . . . . . . . . . .       772                348
      Changes in working capital components   . . . . . . . . . . . .     4,061              3,276
                                                                      ---------         ----------
         Net cash provided by operating activities  . . . . . . . . .    41,866             35,060
                                                                      ---------         ----------
                                                                                           
Investing activities:                                                                      
  Capital expenditures  . . . . . . . . . . . . . . . . . . . . . . .    (6,288)            (7,095)
  Acquisition of the West Pipeline  . . . . . . . . . . . . . . . . .         -            (27,100)
  Other   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (353)                 -
                                                                      ---------         ----------
         Net cash used by investing activities  . . . . . . . . . . .    (6,641)           (34,195)
                                                                      ---------         ---------- 
                                                                                           
Financing activities:                                                                      
  Changes in receivable from general partner  . . . . . . . . . . . .     1,895              1,651
  Issuance of long-term debt  . . . . . . . . . . . . . . . . . . . .    68,000             28,500
  Payments of long-term debt  . . . . . . . . . . . . . . . . . . . .   (69,309)            (2,641)
  Distributions to partners   . . . . . . . . . . . . . . . . . . . .   (27,858)           (25,582)
                                                                      ---------         ---------- 
         Net cash provided (used) by financing activities . . . . . .   (27,272)             1,928
                                                                      ---------         ----------
                                                                                           
Increase in cash  . . . . . . . . . . . . . . . . . . . . . . . . . .     7,953              2,793
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . .     6,307              4,145
                                                                      ---------         ----------
                                                                                           
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . $  14,260         $    6,938
                                                                      =========         ==========
                                                                                           
Supplemental information - cash paid for interest . . . . . . . . . . $   6,913         $    3,696
                                                                      =========         ==========
</TABLE>


                See notes to consolidated financial statements.





                                       3
<PAGE>   6
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------


1.  SIGNIFICANT ACCOUNTING POLICIES

    The unaudited financial statements of Kaneb Pipe Line Partners, L.P. and
    its subsidiaries (the "Partnership") for the periods ended September 30,
    1996 and 1995 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 financial statements included in the Partnership's Annual Report on
    Form 10-K for the period ended December 31, 1995.  In the opinion of the
    Partnership's management, the accompanying financial statements contain the
    adjustments, consisting of normal recurring accruals, necessary to present
    fairly the financial position of the Partnership at September 30, 1996 and
    the results of its operations and cash flows for the periods ended
    September 30, 1996 and 1995.  Operating results for the nine months ended
    September 30, 1996 are not necessarily indicative of the results that may
    be expected for the year ended December 31, 1996.

2.  ACQUISITIONS

    In February 1995, the Partnership acquired, through Kaneb Pipe Line
    Operating Partnership, L.P., the refined petroleum product pipeline assets
    (the "West Pipeline") of Wyco Pipe Line Company for $27.1 million plus
    transaction costs and the assumption of certain environmental liabilities.
    The West Pipeline was owned 60% by a subsidiary of GATX Terminals
    Corporation and 40% by a subsidiary of Amoco Pipe Line Company.  The
    acquisition was financed by the issuance of $27 million of first mortgage
    notes.

    In December 1995, the Partnership acquired the liquids terminaling assets
    of Steuart Petroleum Company and certain of its affiliates (collectively,
    "Steuart") for $68 million, plus transaction costs and the assumption of
    certain environmental liabilities.  The acquisition price was initially
    financed by a $68 million bank bridge loan (see "Debt Refinancing").  The
    asset purchase agreements include a provision for an earn-out payment based
    upon revenues of one of the terminals exceeding a specified amount for a
    seven-year period beginning in January 1996.  The agreements also include a
    provision for the continuation of all material terminaling contracts in
    place at the time of the acquisition, including those contracts with
    Steuart.

    The acquisitions have been accounted for using the purchase method of
    accounting.  The total purchase price has been allocated to the assets and
    liabilities based on their respective fair values based on valuations and
    other studies.  The allocation of the Steuart purchase price presented in
    the consolidated financial statements is preliminary and subject to
    adjustment.

    The following summarized unaudited pro forma consolidated results of
    operations for the three and nine month periods ended September 30, 1996
    and 1995, assume the acquisitions occurred as of the beginning of each
    period presented.  The unaudited pro forma financial results have been
    prepared for comparative purposes only and may not be indicative of the
    results that would have occurred if the Partnership had acquired the
    pipeline assets of the West Pipeline and the liquids terminaling assets of
    Steuart on the dates indicated or which will be attained in the future.





                                       4
<PAGE>   7
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                         Three Months Ended            Nine Months Ended
                                                            September 30,                September 30,
                                                      -------------------------     -------------------------
                                                                     Pro forma                     Pro forma
                                                         1996           1995           1996           1995
                                                      ----------     ----------     ----------     ----------
    <S>                                               <C>            <C>            <C>            <C>
    Revenues  . . . . . . . . . . . . . . . . .       $   29,963     $   30,748     $   86,584     $   86,778
                                                      ==========     ==========     ==========     ==========
    Net income  . . . . . . . . . . . . . . . .       $    9,872      $   8,622     $   28,556     $   25,506
                                                      ==========     ==========     ==========     ==========
    
    Allocation of net income per Senior
       Preference Unit and Preference Unit  . .       $      .61     $      .55     $     1.76     $     1.65
                                                      ==========     ==========     ==========     ==========
</TABLE>


3.  DEBT REFINANCING

    In June 1996, the Partnership refinanced the $68 million bank bridge loan
    with the issuance of $68 million of first mortgage notes ("Notes").  The
    Notes were issued in four series in the amounts of $35 million, $8 million,
    $10 million, and $15 million; bear interest at 7.08%, 7.43%, 7.60% and
    7.98% per annum and mature in June 2001, 2003, 2006, and 2016,
    respectively.

4.  CASH DISTRIBUTIONS TO UNITHOLDERS

    The cash distribution of $.60 per unit for the third quarter of 1996 was
    declared to holders of record as of October 28, 1996 and is payable on
    November 14, 1996.





                                      5
<PAGE>   8
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 
OPERATIONS
--------------------------------------------------------------------------------


FINANCIAL CONDITION

    The Partnership's working capital requirements for operations, capital
    expenditures and cash distributions were funded through the use of
    internally generated funds.

    Cash provided by operations was $41.9 million and $35.1 million for the
    periods ended September 30, 1996 and 1995, respectively.  Capital
    expenditures were $6.3 million in the 1996 period compared to $7.1 million
    in 1995.  The Partnership anticipates that capital expenditures will total
    approximately $8.0 million (excluding any acquisitions) for the year 1996.

    The Partnership intends to fund future cash distributions and maintenance
    capital expenditures with cash and cash flows from operating activities.
    On October 10, 1996, the Partnership announced an increase in its quarterly
    cash distributions to $.60 per unit.

    In June 1996, the Partnership refinanced the $68 million bank bridge loan
    that was used to acquire the liquids terminaling assets of Steuart
    Petroleum Company and its affiliates.  The new debt was issued in the form
    of first mortgage notes which range in maturity from five to twenty years
    with interest rates ranging from 7.08% to 7.98% per annum.

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

OPERATING RESULTS

    PIPELINE OPERATIONS

<TABLE>
<CAPTION>
                                                             Three Months Ended         Nine Months Ended
                                                                September 30,             September 30,
                                                            --------------------      ---------------------
                                                              1996         1995         1996          1995
                                                            -------      -------      -------       -------
    <S>                                                     <C>          <C>          <C>           <C>
    Revenues  . . . . . . . . . . . . . . . . . . .         $16,443      $17,251      $46,270       $43,376
    Operating costs . . . . . . . . . . . . . . . .           6,447        7,163       17,836        16,755
    Depreciation and amortization . . . . . . . . .           1,207        1,198        3,608         3,686
    General and administrative expenses . . . . . .             710        1,059        2,153         2,562
                                                            -------      -------      -------       -------
      Operating income  . . . . . . . . . . . . . .         $ 8,079      $ 7,831      $22,673       $20,373
                                                            =======      =======      =======       =======
</TABLE>

    Revenues declined $.8 million for the three month period ended September
    30, 1996 primarily as a result of a decrease in volumes due to a delay in
    the 1996 crop harvest. Operating income increased $.3 million for the three
    month period ended September 30, 1996 resulting from




                                      6
<PAGE>   9
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------


    non-recurring accruals for two maintenance projects and a non-recurring
    accrual for general and administrative expenses in 1995.

    The increases for the nine month period result primarily from the inclusion
    of the results of the operations of the West Pipeline, that was acquired in
    late February 1995, for the full nine month period in 1996 versus only
    seven months in the 1995 period.

    TERMINALING OPERATIONS

<TABLE>
<CAPTION>
                                                          Three Months  Ended          Nine Months Ended
                                                             September 30,               September 30,
                                                       -------------------------   --------------------------
                                                          1996           1995          1996          1995
                                                       -----------   -----------   -----------   ------------
    <S>                                                <C>           <C>           <C>           <C>
    Revenues  . . . . . . . . . . . . . . . . . .      $    13,520   $     9,282   $    40,314   $     26,881
    Operating costs . . . . . . . . . . . . . . .            6,595         4,790        19,225         13,467
    Depreciation and amortization . . . . . . . .            1,533           861         4,581          2,534
    General and administrative expenses . . . . .              639           599         1,908          1,667
                                                       -----------   -----------   -----------   ------------
      Operating income  . . . . . . . . . . . . .      $     4,753   $     3,032   $    14,600   $      9,213
                                                       ===========   ===========   ===========   ============
</TABLE>

    The Partnership acquired the terminaling assets of Steuart Petroleum
    Company and its affiliates in December 1995.  The increases shown for both
    the three and nine month periods are primarily the result of the
    acquisition of the Steuart terminals.




                                      7
<PAGE>   10
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

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


                          PART II - Other Information

Item 6.     Exhibits and Reports on Form 8-K

     (a)    Exhibits.

            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:  November 13, 1996                       /s/ Jimmy L. Harrison
                                               ---------------------------------
                                               Jimmy L. Harrison
                                               Controller




                                      8
<PAGE>   11
                                EXHIBIT INDEX



<TABLE>
<CAPTION>
       
EXHIBIT                  DESCRIPTION
-------                  -----------
<S>             <C>
  27            Financial Data Schedule

</TABLE>