Reason for prescence of oil bubbles while frying
I am extremely skeptical that a typical cooking oil and water form a significant azeotrope. Such a claim demands an authoritative reference. Most known azeotropes have boiling points only fractions of a degree below the lower boiler, making little difference in the boiling point. Likewise, most known azeotropes contain over 99 wt% of the lower boiler again making most azeotropes insignificant.

It is simply my opinion, but I believe the oil transported from the bubbling liquid is in the form of an aerosol or perhaps even larger droplets.

Those issues aside I agree the bubbling is boiling of lower bp chemicals, almost certainly mostly water. As cooking occurs, decomposition into lower bp compounds is possible (and if significant amounts form, they may form azeotropes with the oil (but see comments above)).

I am also not aware of the solubility of the various atmospheric gasses (N2, O2, CO2) in oil. Gasses are in general less soluble as temperature increases (eg carbonated beverages), so they also would boil out if present in significant amounts (I'd guess they aren't very soluble at 1 atm pressure).

I should also add that while most azeotropes aren't "significant", most liquids do form them.