You are correct that oil does reduce friction. It also reduces wear. Without putting you to sleep with a engineering lesson, oil does reduce friction, but also introduces a degree of drag (drag is friction between a solid against air/fluid). In the case of the heavily modified A7750 movement, the drag created by additional jewels (specifically the oil in the jewel), will induce a greater degree of resistance then the current degree of friction between the components. Make sense? This is why watch makers will use different viscosity of oils to help regulate a watch. Different viscosities induce different degrees of drag. In theory if a watch marker were to put is drop of oil the exact size of the contact surface area, you would reduce friction without additional drag.
Beer me......My head hurts.