What can you do with dwarven oil?
Solution 1:
Dwarven Oil as far as I know can only be used as an alchemical ingredient.
Solution 2:
Dwarven Oil is an alchemical ingredient as @Stof said. Other items like Dwemer Plates and other scrap parts can be smelted to produce dwarven metal from which you can produce dwarven armor with the proper perks (or just sell them).
Some parts are also involved in some quests.
Source: http://elderscrolls.wikia.com/wiki/Dwarven_Metal_Ingot