I am also experiencing this issue with e1.0.10. Oil should actually be a food item. I'm pretty sure it is most likely olive oil or a similar vegetable oil, since they didn't use motor oil or petroleum products in the middle ages.
Lamp oil is what I figured it was.
It's not marked as Consumable, so it probably wasn't considered a food item. In the items list it is set to food and is consumed as if its a food.
Summary: Having more food variety raises morale up to a specific point (to when you have a supply of every type of food. +8 Bonus I believe.) When you go over that number instead of the bonus going to +9 it goes backward to +2. Probably because there aren't that many types of food in the game...