E320 W124 oil pressure gauge
 

I have an E320 W124 sedan, recently had the trans rebuilt and noticed that the oil pressure gauge fluctuates. It never did before the rebuild. When engine is cold gauge stays high, when the engine heats up the gauge drops to zero when I stop or get off the gas. Driving at normal speeds the gauge stays about mid point and will fluctuate as up or down as I accelerate or decelerate. Oil level is fine.

Bad oil pressure sending unit?

the gauge is run from a sensor on the oil filter tower, that sensor has failed on your engine.

In normal condition the gauge is pegged with cold oil and is in the middle with warm engine at idle, stepping on the gas will make it peg again.

Agree. It is a bad sending unit. Mine did the same and changed it. Now it's back to normal.

Check your wire harness first