DATE:  OCTOBER  21,  1997


                                PROMISSORY NOTE
                                ---------------

                           Redwood City, California


     FOR  VALUE  RECEIVED,  PENN  OCTANE  CORPORATION,  a Delaware corporation
("Company"),  promises  to  pay  to  Castle  Energy  Corporation,  a  Delaware
corporation, or registered assigns ("Holder"), at the office of the Company in
Redwood  City,  California  or  such  other  place  as Holder may designate in
writing at least three business days prior to the date fixed for such payment,
the  entire  principal  sum of One Million Dollars ($1,000,000), together with
interest  thereon,  on  the  earlier  of  (i) a date determined by the Company
within  ten  (10)  business days of the closing date of any public offering of
debt  or  equity  securities  of the Company, resulting in net proceeds to the
Company  in  excess  of  $5,000,000,  and  (ii)  June 30, 1998,  (the "Payment
Date"),  at  which  time  all  principal  and  any accrued and unpaid interest
thereon shall be due and owing.  This Note shall accrue interest from the date
hereof at the rate of ten (10%) per annum, payable quarterly on March 31, June
30,  September  30  and December 31 in each year.  This Note may be prepaid at
any time prior to maturity without penalty in an amount equal to the principal
amount  hereof  plus  interest  thereon  to  the  date  fixed  for prepayment.

     All  payments  of  principal  and  interest hereunder shall be payable in
lawful  money  of  the  United  States.

     The  Company  shall be in default hereunder upon the occurrence of any of
the  following  events:  (i) the failure by the Company to make any payment of
principal or interest when due hereunder and such failure shall have continued
for  a  period  of  ten  (10)  days; (ii) the commencement by the Company of a
voluntary  case  in  a  bankruptcy  or insolvency proceeding or the entry of a
decree  or order by a court of competent jurisdiction adjudicating the Company
a bankrupt or the appointment of a receiver or trustee of the Company upon the
application of any creditor in an insolvency or bankruptcy proceeding or other
creditor's  suit;  (iii) the entry of an order for relief approving a petition
for  reorganization or arrangement filed against the Company under the Federal
bankruptcy  laws  and  such  order  remains in force and unvacated thirty (30)
days;  (iv) an assignment for the benefit of creditors by the Company; (v) the
occurrence  of any event of default under the terms of any indebtedness of the
Company  for  borrowed  money  in  excess  of  $50,000,  provided  that  such
indebtedness  has  been  accelerated  because  of  such  default;  or (vi) the
existence  of  any judgment in excess of $50,000 against, or any attachment of
material  property,  of  the  Company.

     At  any  time  when an event of default hereunder shall have occurred and
shall  be continuing, Holder at its option may accelerate the maturity of this
Note  and  declare  all  of the indebtedness thereof to be immediately due and
payable,  together  with  accrued interest thereon, and payment thereof may be
enforced  by  suit  or  other  process  of  law.

     If  this  Note  is  not  paid  when  due,  whether  at  maturity  or  by
acceleration, the Company agrees to pay all reasonable costs of collection and
such  costs  shall  include  without limitation all costs, attorneys' fees and
expenses  incurred  by  Holder  hereof  in  connection  with  any  insolvency,
bankruptcy,  reorganization,  arrangement  or  similar  proceedings  involving
Holder,  or  involving  any  endorser  or  guarantor  hereof, which in any way
affects  the  exercise  by Holder hereof of its rights and remedies under this
Note.

     Presentment, demand, protest, notice of protest, dishonor and non-payment
of  this  Note  and  all  notices  of  every  kind  are  hereby  waived.

     The  terms  "Company"  and  "Holder"  shall be construed to include their
respective heirs, personal representatives, successors, subsequent holders and
permitted  assigns.

     This  Note  shall  be  governed by, and construed in accordance with, the
laws  of the State of New York without giving effect to such state's conflicts
of  law  provisions.    Each of the parties hereto irrevocably consents to the
jurisdiction and venue of the federal and state courts located in the State of
New  York,  County  of  New  York.


                                   PENN  OCTANE  CORPORATION


                                   By: /s/ Jerome  B.  Richter
                                       -----------------------
                                        Jerome  B.  Richter
                                        Chairman,  President  and
                                        Chief  Executive  Officer