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Most axle oil leaks are due to dry or damaged axle seals, loose fittings or bolts, and damaged axles. It is not uncommon for an axle with excessive use to actually develop a slight groove right where the lip of the seal contacts the axle. This will commonly result in an oil leak by providing a path for the oil to seep between the axle and the seal. Another cause of axle oil leakage is a worn pinion bearing, which causes the pinion to wobble and destroy the oil seal. Occasionally, the leaks can be attributed to an over-fill condition when adding oil to the axle's center section.
The typical axle housing is filled with axle oil to a level just below the bottom edge of the axle tube. This depth allows the oil to lubricate the axle's ring and pinion gears, as well as the wheel bearings. The oil reaches the wheel bearings by being sloshed into the axle tubes from the spinning axles and gears, as well as by centrifugal force when the vehicle turns or corners while being driven. Loose oil fill bolts and axle gear inspection hole plugs are also common causes of leaking oil. Placing thread sealing tape or paste on the plug and bolt threads can often resolve the leaking condition.
No matter the type or style of a rear axle, there is a gasket used to seal the center section. This gasket may be sandwiched between a removable-differential and the axle housing, or between a cover on the axle housing that seals access to the gear set and the housing. This gasket — or in many cases, a bead of silicone sealant — can become brittle and allow axle oil to leak from the seal. The only true way to cure this type of leak is to remove the center section or cover and install a fresh gasket.
In most cases, the most common cause of axle oil leakage is due to a faulty axle tube seal. This seal is positioned at the end of the axle tube, between the braking components and the wheel bearings. The seal is not only exposed to heat on both sides, but it is actually touching the spinning axle shaft, creating friction heat on its own.
Due in part to the difficulty in removing the wheel, braking components, as well as the axle itself to replace the seal, it is recommended by most mechanics that the brakes be replaced at the same time as the repair of the leaking seal. The other reason is that the leaking axle oil will seep onto other components. It can ruin the brake pads and shoes before the leak is repaired.