The petroleum industry plays an essential role in driving China’s economic development. In the past few decades, several reforms in the petroleum industry have been implemented; however, there are still some issues that have not been resolved. Moreover, with the new-normal economy, the transition to green energy and international trade disputes, the petroleum market is also facing emerging challenges. Therefore, the purpose of the present study is to review the historical development of China’s petroleum market, identify the current challenges and propose corresponding countermeasures for future prospects. As a conclusion, five main challenges are highlighted totally, namely lack of marketization, excess oil refining capacity, high external dependency, environment pollution and unstable international trading relationship. To address these challenges, it is encouraged to deepen petroleum market reform, accelerate the elimination of inefficient refining capacity, diversify oil supply sources, as well as improve domestic petroleum enterprises’ ability to resist price risks.