Large-scale oil and gas fields have been discovered after years of petroleum exploration in Mahu Sag, Junggar Basin, confirming the significant resource potential in its western margin. However, the origin of oil in the Triassic Baikouquan (T 1 b) reservoir and lacustrine basin evolution during the Permian are still poorly understood. In this study, Permian source rocks and T 1 b crude oil were analyzed using Rock-Eval pyrolysis, vitrinite reflectance, stable carbon isotopes, and biomarker compositions. Results show that the Lower Wuerhe source rock (P 2 w) was developed in a freshwater lacustrine environment with high oxygen content, higher plant input, and now contains typical humic (type-III) kerogen at the low thermal maturity stage. The Fengcheng source rock (P 1 f) was developed in an evaporative lake after mixed seawater (sea and lake). Deposition included anoxic conditions, terrigenous input, high salinity, and intense evaporation, and was dominated by sapropelic (type-II) kerogen, which is currently at the thermal maturity stage. The Jiamuhe source rock (P 1 j) was developed in a transitional marine and terrigenous environment with terrigenous input, moderate salinity, and reducing water, and now contains mainly type-III kerogen at the high thermal maturity stage. The Junggar region's climate was humid–arid–humid for the Early to Middle Permian. Mahu Sag was not completely closed until the end of P 1 j deposition and did not completely evolve into a lacustrine basin with large-scale freshwater input until the P 2 w deposition. Crude oil of the T 1 b formation is very mature and is derived from the source rock of the transitional marine and terrigenous environments deposited in the center of Mahu Sag, with high salt content, weak reducibility, and low evaporite content. Using biomarkers, carbon isotopes, and fine lithologic analysis, the oil-source correlation shows that T 1 b crude oil came from P 1 f calcareous and tuffaceous source rocks. • The Fengcheng source rock was developed in an evaporative lake after mixed seawater (sea and lake). • The Junggar region's climate was humid–arid–humid for the Early to Middle Permian. • Mahu Sag was not completely closed until the end of Jiamuhe formation deposition. • Triassic Baikouquan oil came from the calcareous and tufaceous source rocks in Fengcheng formation. [ABSTRACT FROM AUTHOR]