Step 1: Locate the two reflecting surfaces.
A thin oil film on water has a top surface, where air meets oil, and a bottom surface, where oil meets water.
Step 2: Trace the light paths.
When white light falls on the film, part of it reflects straight back from the top surface, and part enters the oil, reflects off the bottom surface, and then comes back out.
Step 3: Combine the waves.
These two reflected waves overlap because the film is only a few wavelengths thick. Depending on the exact thickness at each point, some wavelengths add up constructively and appear bright, while others cancel out destructively and disappear.
Step 4: Name the effect and rule out others.
This selective addition and cancellation of colours is interference, not dispersion (splitting by a prism), not diffraction (bending around edges), and not polarization (restricting vibration direction).
Final Answer: B) Interference.