Heat oil in skillet over medium-high heat. Add onion and saute 1 minute. Add thyme, salt, and mushrooms and saute about 8 minutes, or until mushrooms are browned. Add sherry and cook until liquid evaporates. Stir in broth.
Bring to a boil and cook until gravy is reduced to about 2 cups (about 14 minutes).
Whisk together flour and water in a small bowl. Add mixture to skillet; return to boil. Reduce heat to low and simmer until slightly thickened, about 2 minutes.
Remove from heat; stir in butter 1 tablespoon at a time and pepper.