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I've been doing some dwarven mines, but I cant seem to find the usage of the dwarven oil. Can you make an item out of it?

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2 Answers 2

Dwarven Oil as far as I know can only be used as an alchemical ingredient.

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When used as an alchemical ingredient, its effects are Weakness to Magic, Fortify Illusion, Regenerate Magicka, and Restore Magicka. –  Jonathan Drain Dec 8 '11 at 13:10

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

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