The price of oil is irrelevant - this is a turf war to pay euromanx back for entering the Galway - London market. The fuel price is the same (more or less) for all airlines involved, so it will come down to who can take the most traffic to reduce the other's revenue and persuade them to rethink their strategy. If taking traffic means you have to sell your cheapest seats at £20 instead of £18 due to fuel, then that's what you do, but it doesn't stop you being competitive pricewise against another airline. In fact a couple of cheap passengers can cover the fuel cost difference.
If RE get off to a good start with reliability and price, they could quickly take many of the disaffected Euromanx customers, still peeved off by Euromanx's huge fare increases following the elimination of Emerald.