Oil reduces friction because it acts as a lubricant, smoothing and cushioning bumps between rough surfaces while also flowing past itself in parallel layers. This second form of lubrication, in which oil moves in multiple directions simultaneously, is referred to as laminar flow.
Different layers of oil tend to move in the same direction with the nearest surface. As a result, one surface moving out of sync with another is able to slide by freely.
By helping moving parts operate smoothly, oil enables machinery to work with less effort, saving energy. It also decreases the wear and tear on their mechanisms, extending the lives of their mechanical components. Both of these effects contribute to lower overall operating costs.