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SINCE it appeared reasonably certain that the key to the presence of sludge deposits, regardless of form, lies in the oxidation of the oil to give the small amounts of asphaltic substances which are inevitably present, the authors prepared the following paper to summarize and appraise the evidence on this point and to present a method for measuring oil stability. After discussing sludge, its composition and effects, engine observations of oil oxidation are stated and the conclusions are reached: (a) that appreciable oxidation of each of the oils occurred in a 50-hr. run; that (b), variation in engine output markedly influenced oxidation of the oils while variation in sump temperatures did not; and (c), that even with the wide difference in the character of the oils used, chloroform insoluble material (“carbon”) did not vary greatly but appeared to be determined mainly by engine condition. A comparison of laboratory and engine tests is made and the Indiana Oxidation Test is described.