I did a quicksave to test if the incinerator fuel is gone after one use (I assumed it would be). It's not gone after two, either. How many times can it be used? If it's infinite, it seems like a game-breaker.

No, just the one I got from giant larvae quest. I'm going to test it out some more... maybe it's a glitch.

EDIT--It appears there must have been some kind of exploitation glitch in the Ossuary. I used it one time outside of there, and it was gone from my inventory.

SPOILER ALERT>>>






I carried the incinerator fuel all the way to the end and used it in the final fight!

This thread is old, but probably useful for new players, so I describe my findings.
Perhaps the author fixes this bug…

The item is obviously intended as a single-use "Demon Oil IV" weapon, but actually it is not.
You can use it as many times as you wish, as long as you don't make one of the following mistakes:
* If thrown at an enemy near you, you might die from the large area effect.
* If thrown on the floor (while pressing the shift key) , it is lost after this use.
* If thrown at a weak enemy, which dies from the flask's initial damage, it is lost.
* If thrown at enemies of certain types, it is lost, among them Tauraxes ambushing you as a high level character, as well as the spiders in the Goblin Citadel.

If used on a "normal" enemy strong enough to survive the initial strike, it will remain in your weapon hand, and can be re-used.

Example for an exploit:

Go to Lilith's house into her bedroom and step in front of the locked chamber with the treasure chest in it. You can either step onto this spot repeatedly, or pause for a round by pressing the space bar, both actions count as a "steps". There is a hidden trigger creating a group of bees ambushing you at the southern crossroads. This way you can create a large bee swarm there. Walk carefully back, and as soon as you can see the first one in line of sight and not too far away, throw the flask. and repeat this. This can bring you up to the highest possible level 21 in a very short time. Just throw never at a bee which is already too weak or too near to yourself.