Water enters engine oil in different ways and moves in the lubrication system causing an increase in wear, oil degradation and additives depletion. It has been proposed that water in the lubricants can transfer from dissolved to free phase leading to additives depletion in the oil. Different additives in the lubricants can easily latch to water molecules forming reverse micelles. The separation of reverse micelles from the oil causes additives depletion. This experimental and analytical study aims to investigate how the separation of free water above the saturation level can diminish the efficiency of additives in engine oils. The effect of varied levels of water on oil performance and its additives was investigated in this study. A new saturation method was used to determine the water saturation level in engine oil at different temperatures. The results reveal a decrease in additive concentration with increased separation of free water from the oil. Free water separation from engine oil is expected to reclaim the tribological performance, however, the results demonstrate that tribological performance after the separation of free water from the oil has been affected. The study showed not only does the removal of free water diminish the efficiency of additives due to additives depletion (≈ 10 wt%), but also the remaining dissolved water which is ≈ 2600 ppm can also affect wear and tribofilm chemistry. The results prove that two main mechanisms influence oil performance expressed as additives depletion by free water and remaining dissolved water.