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What cylinder deactivation is doing in the simplest theoretical terms is redirecting the air from one bank to the other since the engine still requires the same amount of power to go down the road. The increased load on one bank reduces that sides pumping losses, since the other bank is not moving any air there is no pumping losses other than heating up the air that always stays in those deactivated cylinders. Theres no messing with O2 sensors AFAIK because there is either no flow over them or the flow doesnt change depending on where they are located.
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