The Oracle knew Belkar would kill him, and set several things to happen in consequence.
He just explained that the question was extremely vague and knew it would anger the halfling.
Yes, the Oracle knew it would die. No, he didn't try to anger Belkar. He hoped that he could maybe avert the prophecy, because dying hurts. See also his last words: "Yeah... I wasn't buying these theories either... Worth a shot though..."