I found this from my personal Vanagon archives:

***
First a brief explaination of how the system works.  The system has two
sensors.  Sensor one, is located between the pushrod tubes of number 3 and 4
cylinders.  This sensor is grounded when the oil pressure is
under about 7 pounds.  This turns the light on when the key is on but
the engine is not running.  Sensor two is located under the water pump
between the oil filter and oil pump.   This sensor grounds itself out
at pressures over about 18 lbs.  There  is a control unit mounted in the
speedometer and it also senses engine RPM.  THe control unit looks for
system pressure from sensor one up to 2000 RPMs.  Then the control unit
looks for sensor 2 to be grounded out. (a quick test to see if the sensor is
working, hook a test light to a power source and then probe the wire from
the sensor, rev the engine briefly,  the test light should light)  As soon
as the control unit looses ground from sensor two and the engine RPMs are
over 2000 the light goes on and the buzzer flashes.
***

So if you are really sure about the oil  pressure the sensor might be
failed..or the wire is broken..or the connector is corroded.

Regards,

Juha Koivisto
88 Vanagon (Caravelle) 1,6TD (old school bus with 9 seats)
TURKU, FINLAND