Magnets inside of oil?

Question

I know oil doesnt conduct electricity, but could magnets still work inside a container of oil?

Answer 1

Yes.

I've used magnet probes to remove small parts from an oil sump.

Magnetic oil drain plugs are a common way to remove

iron particles from engine oil.

Answer 2

They do!  

Machinery often has magnetic "chip collectors" in their oil sumps.  When something made of a magnetic material such as iron or steel breaks (like the corner of a gear tooth, for example), the broken pieces are attracted to the magnet.  This prevents the pieces from being circulated back through the lubrication system.  Then when you change the oil, you check the chip collector (which is often incorporated into the oil plug) to see if anything has gone wrong.