How do you stop your oil lamps from belching black smoke?

Oil makes smoke. Your problem is that the chimney isn't drawing well enough to take the smoke up. Get an air kit to supply combustion air to the burner. This should relieve the pressure imbalance that's keeping the smoke from going up the chimney. Until then, increase ventilation to the room where the water heater is. Open a window or other vent. You'll lose heat this way, but it's better than having combustion gasses in the living space. Get it fixed promptly. This is a safety issue.