Why is oil priced in dollars?

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With the creation of Standard Oil in the 1870s through until the 1950s, the United States produced more than 50% of the world’s oil. That dominance meant that oil was dollar denominated. Moreover, at that time, most of the equipment needed to extract oil came from the United States. Oil producers wanted dollar revenue to pay for dollar-denominated equipment.
In modern times, Gulf producers have had an incentive to keep receiving dollars for oil. Military spending by Gulf countries has been skewed toward purchases from the US.
Oil producers have been less inclined to buy products from the United States in recent years. The US market share of Saudi Arabian imports is less than two thirds of what it was a decade ago (today around 8% of total imports). If oil producers become interested in diversifying where their military budgets are spent in the wake of the war, that would further challenge the level of spending in the US.
This does not mean that oil ceases to be dollar denominated—aversion to change is powerful. Dollar-denominated oil means higher oil prices result in more dollars having to be purchased. The interesting question is where that increased revenue is spent, and whether that might require a sale of dollars in the future.