ive always used a really wet rag.. then you dont have to worry about catching on fire or exploding
the objective is to get the bolt to shrink in the hole. the oil, or water, is just for cooling purposes basically..
Though you are largely correct, I have better luck with penetrating oil, as a little of it will work down the threads also, if you are lucky.
small easy outs work also..
It's probably just me, but I've broken more little ez-outs than I care to count. The worst part is that I usually know that I'm going to have to drill and tap when I start, but i still try the ez-out and then break it. So i wind up having to remove the bits of ez-out, before I can drill and tap, which I should have just done in the first place, and saved myself the five minutes with the ez-out, and a half hour removing the busted ez-out. I should point out that I was the patient one that got all the troublesome extractions in the shop, so I've had more experience on rusty ontario/quebec junk than many people, and therefore kind of expect the worst.
Anyways , if you are using an ez-out, I'd suggest using heat first anyways.