Is it bouncing around mainly at idle or cruising or both? More at idle and less at cruising or the same at both?
This is a common problem with small block chevy's. The oil pressure sending unit on yours is at the top of the engine and is prone to air bubble to form inside when the engine is off. The air bubble usually stays there and can cause some fluctuation. Check your electrical connection at the OPSU for corrosion and looseness.
You could try a new sending unit since they are fairly cheap. Gauges aren't cheap, plus they are a pain to change out.
My oil pressure gauge bounces even with the new Gen III LS engine. I relocated the OEM sending unit to above the oil filter, but the sending unit points upwards allowing air to become trapped causing a irratic needle occasionally at idle. Cruising it stays fairly steady but it does twitch once in awhile. I can live with that.
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GEN III 5.7L "LS6" Engine swap
TKO500 5 spd.
3.54 Dana 44
