Folding knives are oiled to lubricate the mechanisms just like any other moving machinery.
The blades of all knives are sometimes coated with a thin coat of light oil to prevent rust. This is especially important for high-carbon steel blades.
For long-term storage, though, wax is probably a better way to prevent rust.
Oil helps to protect from rust and also lubricates any moving parts. I like to use milltech sinthetic lubricant on my knives. The milltech actually bonds with the metal and lasts much longer. You can find it on 1sks for like $6 and the bottle will last for a long time. Only use just a drop or two cause a little goes a long way. This product has restored a lot of my old knives to like new smoothness, I can also open some knives with a flick of the wrist that I never could before.
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