What can you do with dwarven oil

I quote the Elder Scrolls Wikia:

At the end of Raldbthar there is a Dwarven Mechanism which you lack the necessary item to activate. (First Dark Brotherhood Contract Area For Muiri)

The item is an attunement sphere found in other dwemer ruins. To unlock the mechanism you need to travel north of Winterhold. Carefully walk down the mountain, or jump off the bridge path to the college and pray you land in the water (not suggested) then swim north past Skytemple ruins, to a cave called Septimus Signus's Outpost. Once you have talked to Septimus he will give you a quest called Discerning the Transmundane and give you key to open the Dwarven Mechanisms.

Raldbthar connects to Blackreach (by going through the Mechanism) which is part of the Discerning the Transmundane quest, so if you dont want to explore the location Septumus suggests or if you already went through that gigantic location and dont want to retun yet, then you can ignore the mechanism.

TES:V Wikia

I'm pretty sure that you are refering to Mzulft and the Dwarven Storeroom, just south of Mzulft, located along the easterly most edge of Skyrim. It is located along the easterly side of Eastmarch found on this map.

Edit: It should be noted that Mzulft is off limits (requires a key) until you receive a certain quest but the storeroom is open to the public.