A screw compressor runs the air through the oil inside the screw. As such the air will come out with oil entrained in it. To remove the oil from the air the compressor will have an air/oil separator element inside the oil reservoir. Running through the cover on that tank will be a dip tube that removes the oil, inside the element, that is separated from the air, and it's drawn/forced back into the compressor.
The result is oil in the air typically means one of two things. One is thee dip tube is messed up, or the line running to it is clogged. The other is the element has gotten a hole in it and is allowing the oil to get past without being separated out.
The dip tube will usually come out of the top of the receiver cover, so it's easy to check it. It's best to take it out before pulling the cover, so if it's OK, then go ahead and pull the cover and check the separator element.
I'm sure you can figure out what receiver/reservoir I am taking about, to locate the separator element. If not the air outlet should be coming off the top or end of it, as it is picking up the air from the center of the separator element.
Good luck, and if you have any more questions feel free to post. I've been working on mobile compressors for nearly 16 years. I may even have a book on yours if it's an older IR. If you need anything let me know and I will see of I've got anything.
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