re: "...I replaced it with a pressure gage and was surprised to see the oil pressure at 65 psi with cold engine but as it warmed up it gradually dropped to <10 psi. Increasing RPM did not raise the pressure...."

Yes, oil pressure should drop as the oil heats up (because of lowered viscosity), but yours dropped that much?

My old mercedes had oil pressure gauges (real ones, built-in), and cold they'd be up around 30 psi cold and they'd drop to be about 20 psi -- that's with AmsOil 10W-40 (100% synthetic). What oil are you using? Is it a low range, conventional formulation (e.g., 10W-30 dino)?

By the way, I am assuming that the pressures you reported were strictly "idle" pressures. What were your pressures at rpms above idle. FYI, according to Mercedes owners manuals (because Volvo doesn't make any mention of this in their manuals for obvious reasons -- no oil pressure gauge), 5 psi (or 1/3 bar) is the allowable minimum oil pressure at idle; but the gauge must be "pegged" (i.e., be over 45 psi or 3 bar) at any rpm over 1,500.

Good luck.