Actually, no, the mixing with water is a good thing.
Oil floats on top of water. If you have any type of water on your gun/knife/whatever, and oil it (thinking you are protecting it) the oil sits on top of the water, not touching the metal, and preventing the water from evaporating, thus encouraging rust.
If your oil and water mixes, when you put the oil on a wet part, it mixes with the water, and the water can evaporate through it, leaving just the oil.
That's one of the many reasons Ballistol is so good.
As for "dissolves the styrofoam cup", that sounds like PB Blaster. It's a penetrating oil, and that's how they promote it. "It penetrates so well it gets between the molecules of this styrofoam cup". It IS a good penetrating oil, although what dissolving a styrofoam cup has to do with penetration powers, I don't know.
Meddle not in the affairs of dragons, for thou art crunchy, and taste good with catsup - George of Lod, Year of Our Lord 297
I always take precautions.
Beware the Evil Bullet Fairies.