Water in oil can exist in three stages: dissolved, emulsified and free. Below saturation level, the molecules of water are dispersed alongside oil molecules, resulting in water in the oil that is not visible. This is known as dissolved water, the least dangerous water state to a lubrication system.

When the amount of dissolved water exceeds the saturation point, the oil is no longer able to absorb more water molecules, resulting in emulsified water. This is characterised by a hazy or couldy appearance of the oil.

Further increments of water content in oil will result in separate levels between oil and water forming. This state is known as free water. Due to its higher density, the water forms the lower layer, settling at the bottom of the sump, with the oil floating on top. However, emulsified water will also be present in an intermediate phase, continuing to circulate in the lubrication system.