As you read this guide on Steam I assume you have TES IV: Oblivion GOTY edion or
TES IV: Oblivion GOTY deluxe edition installed.

There are many guides which show how to get the game running with low spec older machines.
Here I will try to show you how to make the best use of your modern hardware.

Ensure that the game is starting. At the loading screen tick the boxes for all files. In the video options set everything to the highest possible settings and your resolution to your monitor resolution. You can play in 4k if your setup is beefy enough.

Tick Fullscreen,HDR and Vsync on and leave AA off (AA is pointless for high res).

Set Video Quality Presets to Ultra High.

Try and run Oblivion for the first time and verify that everything is working as it should and exit the game.

In case the game doesn't start refer to a troubleshooting guide.

Now that you are going to change game files I advise you to make back up copies of your Data folder and Oblivion.ini.

Although your Steam installation of Oblivion is patched to the latest official patch I suggest that you
get the latest unofficial patches for the Oblivion main game, all addons and DLC.

To get your tools and mods I suggest nexusmods.com as they are a comprehensive source for utilities and mods for Oblivion.

You'll also need the 4 GB patch.exe to make the game use more than 2 GB system RAM.

As always read the descriptions carefully as they are here for a reason.

Before applying any actual mods let's have a look at the on board tools Oblivion provides for better
quality and stability.

First and foremost that is changing entries in the Oblivion.ini which you find in Documents->My Games->Oblivion.

Open the Oblivion.ini file with a text editor like notepad - you made a backup of your .ini didn't you ?

Sadly I found no official documentation what the different settings do but I found this very helpful:

http://www.uesp.net/wiki/Oblivion:Ini_Settings

Be patient when tweaking the .ini and test your settings one by one in game. I think it is also good practice to uncomment the original settings like this: ;uGridDistantTreeRange=30
and your changes directly underneath: uGridDistantTreeRange=40

This way you always know what you did change and to what value.

Be aware that any changes to higher values are a trade off from performance to visual quality.

I will not bore you discussing each and every change I made. I'm going to show you only the most significant ones.

I want grass and lots of it as I find it annoying when you're wandering around and a circle of grass is accompanying you.

fGrassStartFadeDistance=6000.0
fGrassEndDistance=7000.0

Everytime I went to Skingrad vineyards I only saw the first or at best the second nearest row of grape vines.



iFadeNodeMinNearDistance=1600

To prepare for Shader Version 3.0

bAllow30Shaders=1

And as you probably expected here is my actual .ini :

https://www.dropbox.com/s/lyrb28utxdiit8l/Oblivion.ini?dl=0

As you remember in the last section you changed your .ini to:

bAllow30Shaders=1

This only prepares the engine for shader version 3.0 but actually the game engine uses shader version 2.0 nonetheless.

To change this go to the file RendererInfo.txt which is in the same folder as Oblivion.ini and open it.

The last line of the file is something like this: Shader Package : 17

Now go to your game installation folder mine is:G:->SteamLibrary->steamapps->common->Oblivion
your drive letter may differ.

Once in the Oblivion folder go to Data->Shaders and rename the file shaderpackage017.sdp to something like shaderpackage017sdp.bak . Note that your number in the RendererInfo.txt may be different and you always have to change the shaderpackage.sdp file corresponding to this number.

Now make a copy of shaderpackage019.sdp and rename it (in my case) to shaderpackage017.sdp and you are done. Now the engine will actually use shader version 3.0

The best improvement in visual quality is adding high resolution textures to your game.

You'll need Oblivion mod manager (OBMM) and Quarl's Texture Pack III v.1.3.

Luckily for you there's already an .omod file here:

http://www.nexusmods.com/oblivion/mods/18498/?

Read the description carefully how to install and run Archive Invalidation as described for the new textures to appear in your game.

To download and install may take some time as this is a massive file.

Do the same for the Shivering Isles addon with Bomret's texture pack:

http://www.nexusmods.com/oblivion/mods/46162/?

There are also optimized and redimized versions which claim to cause less stuttering and and a smaller performance hit. But here we are going for the real deal - I made the Quarl .omod myself out of the eleven .zip files.

After successfully installing your texture packs play for a while and check if everything is rendered correctly.

Textures aside the water is the next big thing you should tackle. I use Advanced Water Modification by Abdullah:

http://www.nexusmods.com/oblivion/mods/2734/?

RAEVWD is short for really almost everything visible when distant.

I always find it immersion breaking when you leave a city and the chapel tower just disappears.

Obviously you'll need RAEVWD : http://www.nexusmods.com/oblivion/mods/24701/?

and after succesfully installing you have to run TES4LODgen:

http://www.nexusmods.com/oblivion/mods/15781/?

Before running TES4LODgen make sure that the game is loading without hiccups. If you change the load order of your .esm and .esp files you have to run the program again every time.

Here you can see distant Frostcrag Spire from Elsweyr:



And here distant Bruma and Cheydinhal from Frostcrag Spire:

I tried to show you how to get the best visual experience out of Oblivion by pushing your hardware to its limits. Oblivion's performance is limited by the capabilities of your GPU.
Enabling multithreading in the .ini settings does not improve performance although it may be beneficial for stability.

I don't want to compete with the modding guides which are already on the hub. They give you an excellent overview of awesome mods for Oblivion e.g. the guide by Madcaptech.

What I really, really want to emphasize: Make better screenshots. An excellent guide is Laura's Screenshots Tutorial by Laura here on the hub.

The utilities and mods I actually use and have tested over tens of hours to work and not conflict with one another:

Unofficial Oblivion Patch
Unofficial Shivering Isles Patch
Unofficial DLC Patch

Textures:
Quarl's Texture Pack 3
Bomret's Shivering Isles Texture Pack
Advanced Water Modification
Enhanced Vegetation HiRes Textures
IFT Improved Facial Textures
Detailed Terrain - main game, SI and shader patch
Edited Waterfalls by Kitkat
Illumination Within
Cathedral Improver

UI and HUD:
Streamlined HUD
Map Loop and Oblivion Logo Replacement Video
Keychain
Elven Map Redux
New Icon for Eye and Crosshair

Landscapes and Locations (including new quests):
Kvatch Rebuilt
Elsweyr - Deserts of Anequina + addon and patch - only available here:

http://www.theassimilationlab.com/forums/files/file/1070-elsweyr-anequina/

Tales from Elsweyr Anequina
Topal Bay Walkabout

Companions:
Vilja

Other:
Fast Exit
RAEVWD
Oblivion Script Optimization
Landscape Normalmap Fix
Oblivion Stutter Remover (to change the heap size)

Utilities:
OBMM
OBSE
TES4LODgen

If you don't get to greedy and install 100 mods at a time here is what you get:


For best experience watch in 4k if you have the bandwidth.

Here is a short game play impression in 2560x1440 which is the resolution I usually play in.
My setup is just not up to the task to deliver a consistent frame rate of 30 fps or above in 4k.