Heat needs to flow away to reduce the temperature. The oil acts like a giant capacitor for heat by day and then cools down overnight. This works with certain photoperiods, room temps, power levels, etc...
The fan approach is like this:
LED -> heatsink / fan-> forced air
So the heat goes from the LED to the exhaust forced air. It is limited by the ability of air to take on heat and the thermal transfer efficiency of the heatsink/fan to the air. Air is a poor thermal conductor. The downside is the fan sound and the relatively weak thermal performance (higher temp, lower PAR).
Here's how liquid cooling works:
LED -> water in Al pipe -> chiller/heat exchanger/fan -> circulating pump
This allows the chiller to be physically distant from the LEDs. So, like an air conditioner, the heat exchange element can be place outside and can use much more powerful fans/larger exchangers. Water is a substantially better conductor of heat (24x) and the cooling solution can be much larger & more efficient. This reduces noise, size, and improved efficiency and therefore PAR. This is what I do.
The oil looks like this:
LED -> mineral oil stores heat (slows temp rise) ..... At night, the oil slowly cools down.
This would not work for high photoperiod operation. It needs a balance of off-time and cooler air temp to relieve the heat captured. Also, the temp is not uniform. It's coolest when first on, and heats up until off. PAR would drift as temperature rises. Also - taken from overclockers forums - Mineral oil has a specific heat of 1.67 kj/kg°k and a thermal conductivity of .133 w/m°k. That's better than air, but it can't compete with water at 4.19 kj/kg°k and .58 w/m°k.
http://www.overclockers.com/forums/showthread.php/520492-Mineral-oil-instead-of-water
So... There's many ways to skin a cat but they're not all equal.
One note - water cooling is best with DI water but that eventually would corrode the aluminum frame - just a maintenance item that needs to be addressed. If you're willing to accept slightly poorer performance, you can add corrosion resistance compounds.