I think the argument is something like: in a situation where the choice was either the NPC or you and the NPC and there was reasonable certainty no other method of escape exists then you should choose to save yourself instead of having you both die.
I agree with that...
Well, I don't agree at all, and in any event nothing in the Oath suggests that you get an exception to these rules to preserve your own life.
and don't think such an action in such a scenario would break your oath.
This is going to sound unavoidably confrontational, but what you or anyone else thinks is irrelevant. In this situation, the Oath and not a person's consciousness and not logic and not anything else is the ultimate source of truth. The Oath represents an externally reviewable binding source of moral truth. You are not allowed to detract from it or add to it in any manner that would allow you to detract from it by way of a loophole. There is no exception whatsoever in the text that suggests the paladin is allowed to avoid hardship and unpleasantry or his own death ahead of the objective truth of the oath. There are no concessions to pragmatic concerns if being pragmatic directly violate the oath. That doesn't mean you have to be stupid - you certainly can be cunning, discerning, retreat when it's sensible or when you have nothing to defend or protect - but it does mean that you can't put anything above the plain language of the oath.
I don't agree that was the situation presented.
It doesn't matter whether it was the situation presented or not. What matters is that the Paladin cannot know whether it is the situation presented, and the Oath prevents him from treating this like a no win scenario because that would be giving in to despair, failing to be a beacon of hope, and failing to let courage shine forth in all his deeds. He doesn't have to be suicidal and seek out situations he can't win, and he doesn't have to face impossible odds with a headlong charge, but when he has to choose between despair and hope, between cowardice and courage - he absolutely has to choose hope and courage over despair and cowardice.
From the Paladin's perspective, what is the worst thing evil can do here? It isn't kill him. The worst thing evil can do is get him to violate his Oaths. So the logic is pretty simple:
a) I can make a bargain with evil. But not only does that violate my oath, but having induced me to violate my Oath, I am no better able to resist the dragon than before. If the dragon violates his end of the deal, and it's evil - breaking their word is what they do - then I'm certainly no more able to resist the Dragon having violated my Oath than I would be if I didn't. For all I know the Dragon is tempting me to violate my Oath so as to more easily kill me. So there is no surety that my life will be spared if I violate my Oath, and on top of that I will have lost something worth more than my life. So there is nothing at all to be gained in this path. It's all lose-lose.
b) I can stand firm and resist evil. If I am martyred valiantly defending what is right and good, it may be inspiring to others and they may be emboldened by the example of my life. And if I do not die, then I will have earned a great triumph. Either way, I will have preserved my Oath. So resisting no matter what happens is all win-win.
So this isn't even really much of a choice.
Sure, you could have an Oath that attaches a duty to protecting the person of the Oath maker that says something like, "If you can save no one else, save yourself." But this is not that sort of Oath.