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Yes, oil and water are immiscible, so they form separate layers. The oil floats on top because it is lighter — 910 g of oil fills 1 litre, so its density (0.91 g/mL) is less than water's (1 g/mL).
They are separated using a separating funnel: let the layers settle, open the stopcock to drain the lower water layer, then collect the oil separately.
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