Well whether or not it's 'allowed' depends on two things.
1. Does it use any assets from Oblivion? If it uses even one little thing then you can forget about it. If it's all custom content created by the mods original creator, then it passes this check.
2. Do you have permission from the original author? If he has dissapeared and cannot be found, and you have tried contacted him and waited a few weeks for a response, then I would say it's fine for you to do, just for yourself. If you ever did release it to the public, simply make sure to give him credit as it's creator, and be ready to take down the mod, if he returns and requests that you do so.
If both of those things pass, then the only thing standing in your way are possible technical limitations.