Oil is used as a point of contact between us and the Lord. When the oil is prayed over God releases his anointing in it for healing, consecration and deliverance. 
 
James 5:14-15 King James Version (KJV). 14 Is any sick among you? let him call for the elders of the church; and let them pray over him, anointing him with oil in the name of the Lord: 15 And the prayer of faith shall save the sick, and the Lord shall raise him up; and if he have committed sins, they shall be forgiven him.