Oils are one of the mostly used lubricants in industry. Chemical oxidation, however, causes depletion of additive materials i.e. antioxidants in lubricants and their usage life time shortens. This causes varnish and sludge problems and leaves behind tons of used oil that loses its functionality. It is reported that more than 600 tons of lubricating oil can be reclaimed from 1000 tons of used oil. One of the reclamation methods is caustic extraction, and has been known for more than 3 decades. Although caustic extraction has a very high potential because of its economic considerations, this method is not fully understood due to lack of research. We have revealed that opposite to the common belief, oxidized oils (used oils) have ester groups in contrary to carboxylic acids. Magnetic nanoparticles (Fe3O4) can be used as a catalyst for hydrolysis of various esters. We have investigated the effect and mechanism of caustic extraction in combination with magnetic iron oxide nanoparticles. Using sodium hydroxide, breaks ester bonds by forming carboxylate salts and alcohols. These carboxylate salts are transferred into water and can be removed by water. Formed alcohol groups can be trapped by drying agents like MgSO4. Further purification of reclaimed oils can be achieved using hexane or similar low molecular weight and inexpensive solvents. According to our results, properties of recovered base oils mostly compete with petroleum based and ester-based synthetic base oil properties.