The water rapidly (like almost instantly) boils and turns into steam. When water boils, the steam has about 1600x more volume than the liquid that boiled.
Water is also heavier than oil and will sink to the bottom. So it’s nearly an explosion. The water sinks beneath the oil and then gets blasted into steam with a 1600x volume increase. That means you just instantly generated several litres of gaseous steam underneath the flaming oil. The hot gas has to expand, exploding the still-flaming oil everywhere.
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