No actually, the "oxygen" refers to the Type 93 (Long Lance's) primary oxidizer, high pressure pure oxygen stored in a small tank. It was so top secret that even the manuals labeled it as a secondary air tank, with the larger main air tank used to prime the torpedo as directly using oxygen straight made it dangerous.
IIRC this is how the hydro pump system on torpedo tubes work.
Water is taken in from outside to flood the tube and then use a high pressure burst of it to eject the torpedo out.