You would have to change the entire heating system for your house. It will be very expensive. I wouldnt do it. No, you cant use for a bedroom. It is the homes utility area. The window size may not pass code for a bedroom either (hard to tell in picture). I am also assuming you live in an area that gets fairly cold, since you have an oil fired heating system. You probably will need that come winter. Not a great place for a bedroom.

@cat_ky Thank you for the feedback, we're anyways upgrading the heating system as this one has gotten old and we also have a government grant approval to change into electric heating. Also, couple of our neighboring houses have a similar layout and they have bedrooms in this part of the basement, that's the reason I wanted to check what are the other efficient heating options before we go ahead and upgrade into a default heating - the two options we've been given right now is to change the oil furnace to electric furnace, or replace the furnace with a heat pump.

It depends on oil prices in your area and the average temperature in the winter, but in a moderate climate zone an electric heat pump is often a good choice. Newer heat pumps can be very effective to a lower temperature than the old units (about 25 degrees), so in a moderate climate they may seldom go into auxiliary (electric resistance) heating mode.

However, even with a switch to a modern heat pump you will still have a very similar "volume" of equipment in your furnace room, so I don't know that you will gain any space for a bedroom.

Bruce