I've found Iscar Cutgrip style tools are pretty good for machining aluminum, but, 1/16 is very narrow to do anything except plunge cut. I would probably do it with a Kennametal top notch grooving tool, or perhaps a "laydown" style grooving tool would work even better.
For sure, the laydown style (3 cornered) thread tools are much better for threading with than Top-Notch, because they are available with chip formers.
Special clearance geometry is required for face grooving. Iscar and several other companies manufacture face grooving tools with curved support blades and twisted geometry inserts to help form the chip cleanly. A phone call to Iscar support would probably be to your advantage to choose the correct tooling.
Aluminum can be machined with plain uncoated carbide, and a polished face is best to resist built up edge. I think there is a new coating for machining aluminum.....zirconium something, but I don't know how easy it is to get yet.
FWIW, a 1/16 O-ring requires a little bit of squish space, so you might be able to improve the sides of the groove with light secondary cuts, which will widen the groove just a little. I would definitely use an oily fluid to get the best cut surface.
First you get good, then you get fast. Then grouchiness sets in.
(Note: The opinions expressed in this post are my own and are not necessarily those of CNCzone and its management)