ESV - 14 Is anyone among you sick? Let him call for the elders of the church, and let them pray over him, anointing him with oil in the name of the Lord.
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The prayer offered in faith will make the sick person well; the Lord will raise him up. If he has sinned, he will be forgiven" (Js 5:15) In James 5: 14 we read about anointing the sick with oil and praying for them. Many quote this verse and sell "anointed oil" in bottles. Sincere Christians want to know what the Bible has to say about this. Scented oils were used in the Old Testament times to symbolize gladness (Psa 45:7; 104:15), and were avoided in times of mourning (2 Sam 12:20; Isa 61:3). Guests were anointed with perfumed oils as a mark of special hounour (Lk 7:36-38,46). Anointing with soothing oils was also part of medical treatment in Biblical times (Isa 1:6; Jer 8:22). The disciples of Christ continued this Jewish practice when they went on their healing mission (Mk 6:13). The Epistle of James, which was primarily addressed "to the twelve tribes" of Israel (Js 1:1), recommends the use of oil for the sick (Js 5:14). The Greek word "aleipho" used in such instances always indicated a literal rubbing. Also the Greek word for "oil" here is "elaion" which means olive oil. Therefore we are to understand that James was prescribing both prayer and medical treatment for the sick believers. However, oil in the Bible is also a symbol of the presence and power of the Holy Spirit (Zech 4:2-6). Prophets, priests and kings were anointed with oil when they were consecrated. Therefore the use of oil, while ministering to the sick, as a point of contact to encourage faith is not objectionable. It may symbolize the healing virtue to flow from Christ the Head to the sick organs of His Body (Psa 133:2). But it is not the oil that is to be anointed, blessed or prayed for. That is close to idolatry. Under the New Covenant God does not anoint or sanctify objects. The anointing will descend only on people (Acts 2:17). The primary responsibility of ministering healing to believers lies with the local "elders of the Church" (Js 5:14). It must be further followed up by believers praying for "one another" (v16). Healing evangelists should not urge Christians to immediately write to them or phone-call them for prayer, but encourage the Christians and the pastors to develop the healing ministry in the local context. Returning to this Biblical procedure will put an end to malpractices and exploitations in the use of the "gifts of healings" God has graciously placed in the Church.
In my opinion, the anointing with oil in the verse cited in the question did not have any medicinal purpose, and was not connected with the person's actual healing. (The healing was accomplished through prayer, as noted in the following verse (James 5:15).) The anointing (as elsewhere in the Bible) was/is meant as a means of setting the person apart, or lifting them up to God (similar to the way in which kings, prophets, or priests were anointed for their mission), in order (in the case of a sick person) to bring the person's need for healing before God in a specific manner.
I'm glad you asked, we see in James 5:14,15 (Life Application Bible Notes) that oil can represent both the medical and the spiritual spheres of life. Christians should not separate the physical and the spiritual. Jesus Christ is Lord over both the body, and the spirit. The elders should be on call to respond to the illness of any member, and the church should be sensitive to the needs of all its members.
I believe that the anointing with oil ties in with putting oil on Jesus feet at the dinner where he protected the sinning women from the host of the dinner. Jesus also washed and applied oil to the apostles feet at the Last Supper. In the Catholic faith oil is used to prepare someone for a surgery or medical procedure and specific prayers are said, it is also often used making a blessing on the forehead or on a specific spot of injury or pain.
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