Yes, this absolutely is Canola oil. All producers or sellers of ANY chemical, MUST provide an MSDS (Material Safety Data Sheet) on request by law. Previously in this link is the MSDS for this "Shredder Oil". It absolutely is Canola oil per the MSDS. For further information, the MSDS will always call out the "CAS" number for any chemical. A CAS (Chemical Abstracts Service) Registry Number is a unique identifier. In this case the CAS number is: 120962-03-0. Google this for more information.

Is the oil applied directly to the cutting blades or to a sheet of paper that is then fed into the machine?

The oil is applied directly to the cutting blades through the paper feed slot. You then run the shredder in reverse to oil all of the blades. The manufacturer recommends that you oil the blades after each emptying of the full basket.

Hi everyone - could someone please tell me: is this an alternative to lubricated shredder sheets?

I use Mobil 1. If its rated for lubricating engines it will be fine for shredders. I oil my guns with it as well.

Can the extended nozzle be pull out? How long can it extend?

No, the nozzle does not pull out. That said, I have been able to reach all the cutters using the static 1" squirting tip which sits another 1" above the top of the bottle.