A compressed air system for an air brake system includes a heat generating element operating at an elevated temperature to maintain water in vapor state. The heat generating element is preferably an air brake compressor. A discharge oil filter is disposed downstream from the compressor for filtering oil from a stream of compressed air. The discharge oil filter is positioned close enough to the compressor to maintain water in the compressed air stream in a vapor form. The oil filter preferably includes an oil filtering media formulated to agglomerate oil as the stream of compressed air is filtered. The agglomerated oil and compressed air are passed downstream where the agglomerated oil and water from the air stream are removed. Alternatively, the agglomerated oil is filtered to a sump in a housing of the discharge oil filter.