[Walt Fricke]

If you lift the oil level sensor signal wire, your dash gauge will peg. If there is a break in the winding on the sensor (basically a rheostat), when the slider gets it will peg (so might work in the morning when a lot of oil has drained into the engine sump, but not after you get going and the level in the tank drops, with some flickering in between unless I have this backward).

My diagrams show a white ground wire, but Dave is right. Easy to check if this one is a ground, and hook it up. But no particular need to do so, since your gauge is working correctly.