In an oil-filled transformer, insulating liquid helps separate electrical parts and carries heat away from internal components. Its condition matters because the liquid is part of the equipment's insulation and cooling system.
What does transformer oil do?
The National Instructional Media Institute (NIMI) describes oil as an insulating and cooling medium around the core and windings. Heat from the transformer is transferred through the liquid to the cooling surfaces. The arrangement of those surfaces and the way the liquid circulates depend on the transformer design.
Is every transformer liquid the same?
No. NIMI identifies mineral oil and other insulating liquids used in transformers. The correct liquid for a particular unit must be established from its manufacturer's documentation; the term “transformer oil” alone does not identify a suitable replacement.
Why can oil condition change?
The NIMI text notes that moisture and dust can affect the electrical characteristics of oil. It also describes deposits that can interfere with cooling. The presence of one concern does not by itself establish the overall condition of a transformer.
Why is the oil tested?
Condition testing helps qualified personnel assess the insulating liquid during service. NIMI lists dielectric and acidity tests among the checks used for this purpose. Results must be interpreted in the context of the equipment, the applicable test method and the manufacturer's requirements; a single observation is not a complete diagnosis.
Safety and scope
Transformer oil and electrical equipment can present hazards. Mineral transformer oil is flammable, and a transformer may remain hazardous even when it appears inactive. Inspection, sampling, testing and maintenance belong to qualified personnel following approved procedures and the equipment documentation. This overview does not provide a work or testing procedure.
Source: NIMI, Electrician (Power Distribution), 2nd Year Trade Theory, PDF pages 129–130.