Oil or also commonly called transformer oil serves following purpose in a transformer.
A. Primary : Electrical Insulation
The main purpose of oil in transformers is to provide an effective electrical insulation between (a) the winding and tank and (b) between the different winding
B. Secondary: Cooling of transformer
The secondary purpose of oil is to mobilize heat from core and winding to cooling surfaces of the transformer tank.
To fulfill the above purpose, following basic qualities of transformer oil are required:
1. The oil shall be free from dirt, moisture, metal ions fibres etc.
2. It should be stable against oxidation at operating distinct temperatures
3. It should not be corrosive in nature
4. It should not be soluble with respect to transformer material of construction