Oxygen-bearing geolipids, including fatty acids, lactones, and ketones, have been identified in abundance in the Upper Permian shale of the Lucaogou Formation in the Sangtanghu Basin in China. However, the potential for petroleum generation, possible origin, and occurrence state of these compounds remain undetermined. Pyrolysis experiments were conducted by combining flash pyrolysis with hydrous pyrolysis. Flash pyrolysis revealed that the oxygen-bearing geolipids, including fatty acids, lactones, and isoprenoid ketones, exist in both free and adsorbed states, and methyl ketones can be produced by pyrolysis at temperature above 400 °C. The evolution behaviors of pyrolyzates and gases produced at different temperatures are related to the thermal desorption and cleavage of chemical bonds in kerogen. Comparison of the oxygen-bearing compounds detected in flash pyrolysis and gases produced in hydrous pyrolysis suggested that the oxygen-bearing geolipids were possible sources of CO₂ formation at low temperatures in the Lucaogou shale. The decomposition of fatty acids, lactones, and ketones causes the removal of oxygen-containing functional groups and the formation of CO₂ and petroleum. Our study firstly demonstrates that the oxygen-bearing geolipids in the Lucaogou shale occur primarily in the free and/or adsorbed state, which indicates that these geolipids derived from microbial degradation. The short chain C₁₉–C₂₆ steranes and C₂₆–C₂₉ norhopanes detected in Lucaogou shale are also proved this source. Furthermore, petroleum and gases can be produced via deoxygenation of oxygen-bearing compounds, may revealing that the oxygen-bearing geolipids play a significant role in the process of petroleum generation.