Why water and oil do not mix?

Water molecules have an electrical charge associated with them. The same type as those found in a magnet. 

Oil, on the other hand, has no charge. It is completely neutral. 

Now, if you take two magnets and put them near each other, they will bind together. Water molecules behave in the same way. Because they are little ‘magnets’ they will bind together.

So, when you mix oil with water, all the water molecules get attached to each other and essentially ‘push out’ all the oil molecules, causing the separation you see.

This is the same principle that applies to oil floating on top of dals and gravies when you use too much quantity of oil.