Oil pressure gage is dropping when engine get on 95 yj 2.5

Knowing how these gauges work , I'd say you have an instrument cluster problem not oil sender unit. 2003 - 2006 GM had bad stepper motors in the instrument cluster . If there was a problem with the oil sender the gauge would default to zero .
Engine Oil Pressure Gage
The instrument panel cluster (IPC) displays the engine oil pressure as determined by the powertrain control module (PCM). The IPC receives a class 2 message from the PCM indicating the engine oil pressure. The engine oil pressure gage defaults to 0 kPa (0 psi) or below if:
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The PCM detects a malfunction in the engine oil pressure sensor circuit.

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The IPC detects a loss of class 2 communications with the PCM.

If you don't know what class 2 serial data communications are ,google it. How to repair GM Instrument Cluster Speedometer Gauge Stepper

I looked at info for 1500--5.7L engine.
6 psi @ 1000 rpms
18 psi@2000 rpms
24 psi @ 4000 rpms

Sometimes, you can use analog gage in place of oil pressure sending unit and double check oil pressure that way. If oil pressure is actually low, if high mileage engine, I doubt replacing oil pump will help. I just wanted to add, check oil pressure engine warmed up.

Well if you trust the gauge, the problem could be the pump or several other components. If the crank bearings are worn out, you will loose oil pressure as the engine warms up just as you would with a weak pump.
You won't know until you take the oil pan off and inspect.

You need to pull the pressure sensor and install a manual test gage, (borrow from Autozone or other chain part store) that is the only way to verify the engine is not loosing oil pressure.

How would sludge in the engine have anything to do with the fuel pump ?
If the oil filter had sludge in it, the engine does too. Including the passage for the oil pressure sensor.
You could try flushing out the engine, but you may have to have it rebuilt.

Usually on idle (warm engine) this is OK.

With an oil pressure gauge:
Remove the oil sender unit and install an oil pressure gauge at the cold engine and let the engine warming up. And record oil pressure data.
You will see if the oil pressure match your problems if so then there is an internal leak or bad oil pump or old engine oil.

Hope it helps.

If this is a loud knock from lower part of the engine then its the crank bearings, I personally think that the engine is done.

when you say it does the same thing the iol level keeps going down that would be a major problem
if the oil pressure keeps droping check the pressure with an external gage do not rely on the factory one if the pressure is good the factory gage could be bad if not you could have a bad oil pump

CHECK GAGES light (1) indicates a potential engine failure(low oil pressure, low coolant, coolant overheating) has occurred.
· Check gages and shut down engine. Gages should read as follows: Oil pressure 5 to 10 psi (34 to 69 kPa) at idle; Water Temp gage below 230 degrees (110 C).
· Check engine oil level (Para 2-11) if OIL PRESS gage indicates low reading. Check coolant level (Para 2-11) if Water Temp gage indicates high reading. Notify Unit Maintenance if levels are low.

If CHECK ENGINE light (2) is on, check engine oil pressure gage (3) and water temperature gage (4). If both indicate normal, proceed with mission and then notify Unit Maintenance. If either one does not indicate normal, stop engine immediately and notify Unit Maintenance