Water and oil don't mix without an emulsifier - and would eventually separate.

Plastics outgass - this is because as the polymer stabilizes and crystalizes, the chains become tighter and release molecules. This is also why some plastics "sweat" and smell. Newly cast and extruded plastics do this to stabilize, old plastics tend to crack and break down because over time, those chains break down. Outgassing is not an exothermic process.

A smoking point is a temperature where a combustible liquid begins to break down. This term is usually reserved for cooking oils...

A flash point is a temperature at which a flammable liquid vaporizes and can ignite. i.e. FAE. If you don't know what that is, look it up. It is scary.

Ignition point - the minimum temperature where a substance will burn and remain burning without application of more energy (heat). this is the point where if it burns, it will continue to burn on its own.

Dieseling - in an airgun, it means that there is fuel somewhere in the compression chamber. Pressure Volume and Temperature are directly related in this case. As space decreases in the chamber, pressure increases and temperature increases (Your air volume is still the same, just compressed). When the temperature within the volume of space reaches the flash point of the fuel (oil, whatever), the fuel ignites, further increasing pressure and temperature. PV/T.

Assume you take 6CI of air at room temperature (21C) and normal atmosphere (14psi) and you want to get it to 1000psi. You get:

P1/T1=P2/T2 (The volume of air is constant)
14PSI/21Deg=1000PSI/T2
T2=1500 Degrees. Burn baby burn.

This is why you don't use anything but synthetic and silicone grease when dealing with HPA. Any hydrocarbon based oil will flash and burn under pressure and increase the pressure very rapidly.

I suspect that the smoke you are seeing is caused by dieseling. IMHO The brown smoke you see is due to impurities and additives to the oil. Steam has no smell.

You can create a seal (like a gasket) around the pellet's skirt to improve the containment of air by using a little silicone grease. This won't hurt the rifle, but you should always clean up. Once you fire this, you should not see any smoke in the barrel (silicone grease doesn't burn at these temperatures or pressures). I would think that this would improve your velocities (not much... but a bit...)

Also, you may need to clear the chamber by firing a dozen rounds or so between experiments since the fuel may not all burn away at once. If you find your rifle still has smoke in the barrel after a few shots - and you have not lubed your pellets... chances are, you're dieseling.

Dieseling is bad. It causes damage to the piston seal as well as the spring and compression cylinder. For a new airgun, it helps break it in, but doing it constantly will gut your rifle.

Try out the silicon grease... I want to see what your results would be.
Cheers!