This paper presents an innovative oil circulation observer to estimate oil concentration and oil amount in refrigerant compressors. This model-based dynamic observer is based on oil models for the components of an air-conditioning or refrigeration system. Oil models for HVAC&R components are developed in this paper to estimate oil mass and refrigerant mass in each component. Using all of the component oil models and both heat exchanger dynamic observers, which provide the estimation of inner geometric lengths of two-phase-flow heat exchangers, a system-level dynamic observer is established by integrating all of the component models. Experimental testing has been conducted to verify the performance of this dynamic observer for steady-state operation and dynamic processes. This research on the oil circulation observer has direct applications for safe and reliable operation of residential and commercial air-conditioning and refrigeration systems.Units: SI