Characterized by its exceptional electrical, physical, and chemical properties, 1-phenyl-1-xylylethane (PXE) insulating oil finds extensive application in the realm of power capacitor insulation. In this study, molecular simulation is employed to investigate the reactivity of PXE insulating oil molecules and the impact of temperature on water diffusion behavior in PXE insulating oil, as well as its solubility. The findings demonstrate a higher propensity for hydrogen atoms in nucleophilic and electrophilic positions within PXE insulating oil molecules to interact with water molecules. The inclusion of a temperature field enhances the Brownian motion of water molecules and improves their diffusion ability within the oil. Furthermore, the temperature field diminishes the interaction force between water molecules and the oil medium. Under the influence of this temperature field, there is an increase in the free volume fraction of PXE insulating oil, leading to a weakening effect on hydrogen bonds between oxygen and hydrogen atoms within PXE insulating oil. Additionally, with increasing temperature, there is an elevation in moisture solubility within insulating oil, resulting in a transition from a suspended state to a dissolved state.