Use a dishcloth, as you will see shortly in the video below.
A wrung out wet dishcloth can actually be a one-sized fits all lid to cover a fire in a pot! Hit the play button to watch.
Yes, you MUST NOT try to snuff an oil fire out by throwing water on it. The reason? Since water is heavier than oil, it will sink to the bottom of the pot/pan where it instantly becomes superheated.
The explosive force of the steam blows the burning oil up and out. In the kitchen, the fire ball hits the ceiling and fills the entire room.
Also, DO NOT throw sugar or flour on an oil fire. One cup of either sugar or flour will generate a force that is equivalent to two sticks of dynamite.
Source: The Fire Brigade