Peanut oil, also referred to as groundnut oil or arachis oil, is a vegetable-derived oil made from the edible seeds of the peanut plant.Though the peanut plant flowers above ground, the seeds or peanuts actually develop underground. This is why peanuts are also known as groundnuts.Peanuts are often grouped with tree nuts like walnuts and almonds, but they are actually a type of legume that belongs to the pea and bean family.