How can I cut up and remove a metal kerosene storage tank that is in a cellar?
Your biggest concern is gas concentration.  You can't get ignition if the mix isn't there, so ventilate, ventilate, ventilate.  Open windows, put fans in them, and have fans blowing on your work area.  

A power tool is going to throw sparks, where a manual snip tool won't, so if you can cut through the metal with snips, do so. Slow, painful, but safe.  

If not, then drain all the kerosine you can from the bottom, and then cut a hole in the side of the tank with as few cuts as possible (again, heavily ventilated, blowing air through the area and through the tank as well), and use that access to drain even more.

Finally once the sludge is removed, you should be safe to go ahead and cut it up with a reciprocating saw.