If the demister is on the crankcase vent then air is leaking past the rings, and breathing out the vent. Any oil the air blows off the cylinder wall, ring, or piston, may become atomaized. ALso the splashed oil in the crankcase may be atomized. The crankcase gases vent into the crankcase breather. As your compressor wears, the flow increases and the capacity of the demister to catch and return the oil to the crankcase may be overwhelmed.
Conversely, if the oil is going downstream into your compressed air system, it is probably being sucked by the ring from the crankcase on the intake stroke. Oil in the cylinder during compression is 'way to close to being the same as a diesel engine, but even if it does not ignite it can vaporize and smoke in the cylinder.
Possible causes: worn rings, overfilled crankcase, plugged crankcase vent, or improper oil viscosity.