The chemical reaction that takes place when you turn on your furnace creates toxic fumes, most notably carbon monoxide. In a properly functioning system, these fumes escape your home through a vent, such as a chimney. But if you can smell oil, the venting system might not be working, or the furnace itself might have leaks that are allowing toxic fumes to escape.
A clogged chimney or similar external problem can prevent toxic gases from leaving your home. If the oil smell is due to a chimney blockage, the oil odor itself is not the primary safety hazard. Rather, the greatest danger is the carbon monoxide that accompanies the oil odor. Only a carbon monoxide detector can determine if you are at risk, and only a professional repair person can find the underlying cause.
Another possible problem is a malfunctioning furnace part. For example, a cracked heat exchanger can lead to a pervasive oil odor. Normally, the heat exchanger isolates the combustion reaction (which produces toxic gases) from the air that your oil furnace will heat and distribute. In a properly functioning oil furnace, the sealed-off combustion area will vent outside. But if there are cracks in the heat exchanger, such as those corrosion might cause, toxic gases can escape the combustion chamber and travel with the heated air through your home’s heat-distribution network. The cracks in the heat exchanger usually are invisible when the furnace is cool. As the metal expands with heat, the cracks widen, allowing the dangerous gases to escape.
If the oil smell comes from an oil leak, the pooling oil is a safety hazard. For example, a leaking tank or supply line could allow oil to soak into nearby wood or drywall. All you see is a dark stain, but the soaked area is flammable, presenting a significant fire hazard. In this case, the oil odor isn’t the direct danger; rather, it is a sign that a growing fire hazard requires immediate attention.