Join Date: May 2012
Location: United Kingdom
The water is your cooling system and is drawing the heat away from the engine block and dispersing it using the radiator at the front of the car through which air flows (providing the cooling effect). The temperature sender is usually located away from the block - the temperature reading from this is not the temperature of the actual engine. Oil is usually operating at around 100 degrees in street applications so will be hotter than your coolant readings. A small amount of vaporisation is to be expected if you take the cap off a running engine, though I wouldn't recommend doing this a lot.