Oil is a dark liquid added by BuildCraft that is found in the Overworld and Mystcraft ages. Oil can power combustion engines, or can be refined or centrifuged into fuel, which is a more efficient energy source. Oil is textured like black water. It can be picked up with a bucket or other liquid storage, or a buildcraft pump .
Oil wells vary in size from small pools to massive geysers. Oil pools are most commonly found in deserts and never in oceans, but geysers can spawn anywhere (including in oceans). Oil geysers begin underground: A tube extends down from the center of the geyser to an empty "bulb" containing most of the oil, usually between layers 20 and 30. The size of the bulb varies with the height of the geyser. Oil acts much like water. It does not hurt mobs, (unless those mobs are hurt by water, e.g., blaze), players cannot breathe in it, it flows far slower, but just as far, as water and reacts like water in contact of lava. However, it cannot make infinite sources. It is explosion resistant.
Oil blocks that are not source blocks will connect to water blocks that are not source blocks, and uses the same sound as water. In addition, oil uses an opaque water texture. Players and mobs can not swim in oil as they can in water normally. Using the morph mod to change into a Squid will allow you to breath in oil, but you can not swim up and it does not improve your vision.
As of Buildcraft 3.6.0 and above, oil is flammable. Burning oil consumes source blocks.
Also oil can no longer be placed in the nether, as it will explode instantly (probably since 3.6.0 too).