UE5 graphics over the old Oblivion engine.
This is a gross misunderstanding of how game engines work that people keep parroting over and over. The games where this is actually done (Halo Remasters, the Tomb Raider remasters, etc) are using custom engines specifically designed to run the old engine code and apply the new graphics as a skin. Remasters like Shadow of the Colossus, Demon's Souls, Nightdive ports, they all also use custom engines but they load original game code separate from the original engine, where their engine takes over the engine duties, but this only works with games where the game code is separated from the engine code, otherwise you need to do a lot of work.
Unreal is not capable of this, it is fundamentally different in every way to Bethesda's Gamebryo fork. Of course people will argue that the GTA trilogy remasters are done in Unreal, but as previously mentioned, those games used Renderware and so the actual game code is separate from the engine code, and they were able to port the game code specifically over to Unreal engine like a plugin. It's not actually running the original engine, just the game scripts and game code that was ported. What they are likely to have done with Oblivion is take snippets of gameplay code from Oblivion and ported that to Unreal. They have also probably written a tool to import ESM records from the original game similar to how Skyblivion has a tool to port Oblivion quest data over to Skyrim, but for everything instead, but that still needs to be converted to how Unreal handles everything.
So in the end there is probably Bethesda code still being run, its not running Oblivion's engine in any sense, and whatever they were able to port has probably had to have so much work done to it in order to function in Unreal's very different design that its more a remake than a remaster.
Being done on Unreal means that modding it will be incredibly difficult and very limited if they don't release tooling, even if they do release tools its still going to be very limited because of how Unreal handles cooked assets, file overrides and PAK file loading (no concept of load orders).
