This occurs as a result of repulsion of forces. I have a perfect slide that outlines exactly why this is.
Oil molecules are nonpolar, which cannot form H-bond with water.
Water molecules around oil droplets must rearrange H-bonds to form a cage-like structure. Their orientations and movements are much restricted and so they have low entropy. The larger the oil-water interface, the lower the entropy. To maximize entropy, oil-water interface must be minimized, supporting spontaneous separation.
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