Oil is a flammable liquid that floats on top of water. It can be found in pools, large vats, inside lanterns and explosive barrels, as well as emitted as blood from robotic Enemies. Additionally, it can be created via use of certain Spells
Submerging yourself in oil gives you the oil stain effect. Which makes you slippery and more vulnerable to fire. Strangely, submerging yourself in oil while you are already on fire will put the fire out and not ignite the oil.