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Common problem on the 03-06 Avalanche instrument clusters, it's caused by failing stepper motors on the cluster's circuit board and it can be repaired. Check this page for more on how to get it fixed - Avalanche oil gauge fix
Sounds like the oil pressure sensor. Thatt is the easiest thing to change. If not its the gauge. Put voltage to the wires from the switch and see if the gauge stops jumping and stays pegged, if it does its the switch Good luck
the sensor is located at the back of the top of the engine, behind the distributor. Could be the sensor or the gauge itself. Probably the sensor stuck.
you should check all the fuses and check the colent sencer on the block and check all the electrical conections coming from the tank if cant find any thing check the cluster and if bad replace
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