You can dip oil into booze or vice versa to create a new type of potion (“potion of firebomb” or “potion of molotov cocktail”) that is never randomly generated, which is primarily intended to be lit and thrown like oil, but results in a much more powerful fireball than oil alone would produce.

Effects when drinking this potion are unspecified. Since oil has minimal effect when you drink it, it likely just works like booze or diluted booze.