It is well used by caravans (5)

I believe the answer is:

oasis

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'it is well' is the definition.
(source of water)

I don't understand the remainder of the clue.

(Other definitions for oasis that I've seen before include "Feature of desert" , "Noel & Liam's band" , "where palms grow" , "Fertile place like waterhole in desert" , "place of refuge" .)

I've seen this clue in The Globe and Mail.

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