The Global Fuel Economy Initiative in 21st session of COP21 to the UNFCCC aims to develop 50 percent more efficient automobiles by the year 2050.This initiative has enhanced interest in fuel economy improvements and emission reduction using novel engine-related technologies and fuel efficient engine oil. Low viscosity grade engine oils have demonstrated the potential to improve the fuel economy by reducing the friction and lowering the greenhouse gases. In this context of developing fuel efficient engine oils, this study focuses on establishing the validity of an in-house short duration test protocol to differentiate engine oils from a fuel economy aspect and also attempts to relate reduced exhaust emissions. In the present study, low viscosity grade oils - SAE 0W-20, SAE 5W-30 and SAE 20W-40 as the baseline oil, were selected for assessing engine oil effects on fuel economy of diesel engines. Effects of viscosity on engine performance with respect to power, fuel economy and emissions were investigated by conducting fuel economy engine tests on a single cylinder Petter AV1 diesel engine. In the results, higher fuel economy and lower CO2, HC and NOx emissions were observed using lower viscosity engine oils compared to higher viscosity engine oils. The analysis reveals that lower viscosity engine oils indicate favorable prospects in terms of enhanced fuel economy and reduced exhaust emissions due to engine oil.