I would not oil the fan. Oil won't work for too long in a fan, and it will tend to gather dust--plus you might get it on something else inside the case. At most, you can use a synthetic lubricant for electronic/electric components, but the fan really shouldn't need it. They are designed to run unlubricated. If there's a problem with the fan you will only be delaying the inevitable, and briefly at that.
I still suggest replacing it with a quiet fan. They have decibel ratings, so you can tell which is the quietest. They are very simple to install. You really should find out which fan it is before doing anything--if it's the CPU fan, it could die on you and burn up the processor. I don't know how old that system is, but they can be expense to replace.
IsaacJ