Arcane Oil, often simply referred to as Arc Oil, is a substance formed from the decay of fragments of Divinity over extremely long periods of time. Most deposits of Arc Oil are located in Numeria, but a number of other large fragments landed in other parts of Golarion and have created scattered deposits of Arc Oil.
Arc Oil is composed of carbon molecules entangled via a magical bond. When this bond is severed the energy of the bond is released resulting in the release of heat and smoke.
Unlike most fuels Arc Oil does not burn when exposed to mundane fire or heat. Instead it combusts in reaction to intensely compressed arcane energy, more even than the ambient energy around a spellcaster casting a high level spell. For this reason Arc Oil was believed to be inherently stable and was used simply as a high quality lubricant for much of recorded history.
In the year 4758 a Nex researcher discovered that Arc Oil could be processed by combining it with a compound he called a liberator. The liberator loosened the magical bond and allowed the processed form, commonly called "arc fuel" or just "arc" but technically referred to as parcaffin, to combust even in the presence of small sparks of arcane energy.
Over the next 20 years an industrial revolution unfolded. Technologies such as cars and electric lighting, which had only existed in only in places like Numeria or Nex, were suddenly accessible anywhere in the world as long as they could maintain a supply of parcaffin.