However, this results in oil contamination of the air in the outlet. This becomes an issue if the air is used for medical purposes, food manufacturing, etc.
Oil free compressors do not use oil in the compressing process. Hence, there is no oil residue in the compressed air. The casing and the rotor lobes are designed such that the sealing process does not require oil.
Oil will be used in other components of the machine such as the bearings and the gearbox. However, this oil will not come in contact with the air.