Abstract: Recently, significant oil discoveries have been made in the shallower pay zones of the Jurassic Badaowan Formation (J1b) in the Mahu Sag, Junggar Basin, Northwest China. However, little work has been done on the geochemical characteristics and origins of the oil in the J1b reservoir. This study analyzes 44 oil and 14 source rock samples from the area in order to reveal their organic geochemical characteristics and the origins of the oils. The J1b oils are characterized by a low Pr/Ph ratio and high β-carotene and gammacerane indices, which indicate that they were mainly generated from source rocks deposited in a hypersaline environment. The oils are also extremely enhanced in C29 regular steranes, possibly derived from halophilic algae. Oil-source correlation shows that the oils were derived from the Lower Permian Fengcheng Formation (P1f) source rocks, which were deposited in a strongly stratified and highly saline water column with a predominance of algal/bacterial input in the organic matter. The source rocks of the Middle Permian lower-Wuerhe Formation (P2w), which were deposited in fresh to slightly saline water conditions with a greater input of terrigenous organic matter, make only a minor contribution to the J1b oils. The reconstruction of the oil accumulation process shows that the J1b oil reservoir may have been twice charged during Late Jurassic–Early Cretaceous and the Paleogene–Neogene, respectively. A large amount volume of hydrocarbons generated in the P1f source rock and leaked from T1b oil reservoirs migrated along faults connecting source beds and shallow-buried secondary faults into Jurassic traps, resulting in large-scale accumulations in J1b. These results are crucial for understanding the petroleum system of the Mahu Sag and will provide valuable guidance for petroleum exploration in the shallower formations in the slope area of the sag.