Differential Oil is a lubricant made specifically for differentials. The differential oil lubricates the ring and pinion gears that transfer power from the driveshaft to the wheel axles. Itƒ??s thicker than engine oil and is designed to perform under high pressure. The purpose of the differential fluid is to cool and lubricate your differential. Without the oil your differential would overheat due to the metal-to-metal contact and burn itself out.