Preheat oven to 400°.
Place onions in a 13 x 9-inch baking dish coated with cooking spray. Drizzle with oil, tossing to coat. Bake at 400° for 40 minutes, stirring halfway through cooking time. Remove from oven. Drizzle sherry over onions; stir to combine. Bake an additional 40 minutes, stirring once.
Melt butter in a small saucepan over medium heat. Add flour, stirring with a whisk until smooth. Gradually add milk, stirring with a whisk until blended; bring to a boil. Cook 1 minute, stirring constantly. Remove from heat. Add cheese, salt, and pepper, stirring until smooth.
Pour milk mixture over onions, stirring to combine. Bake at 400° for 20 minutes or until mixture is thick and beginning to brown on top. Remove from oven. Let stand 10 minutes before serving.