Peugeot 206 Warning Light and Oil Pressure Issue

Yep, seen that before on a couple of 206s. Could be the sensor itself acting up too, not just the wiring. Have you checked the sensor's resistance? Might give you a clue if it's completely shot.

How do I check the sensor's resistance? What's an acceptable range, and what other diagnostic steps do you advise?

Right, you'll need a multimeter for that. Disconnect the sensor and measure the resistance across its terminals. The correct value should be in the service manual, but if you can't find it, a drastically different reading (open circuit or short circuit) compared to a good sensor would indicate a problem. Honestly, if you're not super confident, it might be worth a quick check at a shop. They'll diagnose it properly in no time.

Took it to a workshop. It was a faulty connection as suspected. Repair was 95€.