When a drop of oil spreads across a water surface, it exhibits...

in film, a portion of the light is reflected from the upper surface of the oil film and another portion is reflected from the lower surface (oil-water interface).

These two reflected light waves superimpose and interfere with each other. The condition for constructive or destructive interference depends on the thickness of the film and the wavelength of the light. Since white light consists of different wavelengths (colours), different colours undergo constructive interference at different thicknesses of the film.

This phenomenon of thin-film interference is responsible for the beautiful colours seen in the oil drop.