I just bought an '89 which basically has never been offroaded (until now ) and was driving down the road at highway speeds yesterday and noticed what looked like 2 problems:

1. oil guage periodically dropped quickly to 0, then bounces back intermittently
2. when it bounces back, it only bounces back to about 20 psi

If I downshift and rev the motor to 3K, the pressure never seems to move over 20psi, in fact it really doesn't move relative to engine RPM. Would a sender do this, or do I have other issues? This XJ looks super clean and has 160K on the original motor and excellent maitenance (the motor is perfectly clean and shiny). I can't understand why the pressure wouldn't go up if I rev the motor.

'89 XJ, bone stock, except cup holder thingie

 

its your oil pressure sensor... $30 part at the dealer, its located right above the oil filter. screws in. quick fix...

 

I have the same problem except my gauge just doesn't at all. I bought an oil pressure sending unit from NAPA. The one that is in my rig has a place where you can wrench on it that is on the same side as the electrical connection. The one I bought has it on the opposite side. The side that is threaded to screw into the motor. Does it go inside the housing there? or whats the deal?

 

If you have any doubts then unscrew the sender and screw in a gauge that is mechanical to see what kind of oil pressure you really have. If you have good pressure then slap the sender in that Jeep and go run a trail or two.