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Is there a way in Oblivion un-nock an arrow so that I do not have to fire it?
The method used in Skyrim, which is to sheath your weapon, does not work for Oblivion.
No you cannot. There is however a mod that you can use which allows you to do this if you are okay with using mods.
You can access the mod here:
You will need the Oblivion Script Extender, which you can get here:
Confirmed working in Oblivion for PS3:
If you talk to someone, completing dialog un-nocks the arrow. Obviously this may be overly difficult unless you accidentally nock the arrow in a town.
Required, but never shown