An on-line sensing system and method for monitoring in real-time thermal-oxidative breakdown, water contamination, and/or fuel dilution conditions in operational engine lubricating oils. The method of the invention includes an electrochemical impedance analysis technique specific to the particular oil to be monitored. Sensing devices having of at least two electrodes are configured for direct installation in an existing access port, or drain port, of a lubricating oil reservoir. An AC voltage waveform is applied to the sensing device (preferably less than 100 Hz) to produce voltage and current responses between the appropriate electrodes contacting the oil. The magnitude impedance |Z| and phase angle components of the complex impedance are used to characterize the quality and/or condition of the engine oil under test. The system also provides an electrical indication indicative of the percentage remaining useful life of the oil.