The Weixinan Sag in the Beibuwan Basin is rich in shale oil resources. However, the reservoirs exhibit rapid phase changes, strong compartmentalization, thin individual layers, and high-frequency vertical variations in the thin interbedded sandstone and mudstone. These factors can restrict the height of hydraulic fracture propagation. Additionally, the low-porosity and low-permeability shale oil reservoirs face challenges such as low production rates and rapid decline. To address these issues, the Plannar3D full 3D fracturing model was used to simulate hydraulic fracture propagation and to study the main controlling factors for fracture propagation in the second member of the Liushagang Formation. Based on the concept of geological–engineering integration, a sweet spot evaluation was conducted to identify reservoirs with relatively better brittleness, reservoir properties, and oil content as the fracturing targets for horizontal wells. The UFM model was then applied to optimize fracturing parameters. This study indicates that the matrix-type oil shale has a high clay mineral content, resulting in a low Young’s modulus and poor brittleness. This makes hydraulic fracture propagation difficult and leads to less effective reservoir stimulation. In contrast, hydraulic fractures propagate more easily in high-brittleness interlayer-type oil shale. Therefore, it is recommended to prioritize the extraction of shale oil from interlayer-type oil shale reservoirs. The difference in interlayer stress is identified as the primary controlling factor for cross-layer fracture propagation in the study area. Based on the concept of geological–engineering integration, a sweet spot evaluation standard was established for the second member of the Liushagang Formation, considering both reservoir quality and engineering quality. Four sweet spot zones of interlayer-type oil shale reservoirs were identified according to this evaluation standard. To achieve uniform fracture initiation, a differentiated segment and cluster design was implemented for certain high-angle sections of well WZ11-6-5d. Interlayer-type oil shale was selected as the fracturing target, and the UFM was used for hydraulic fracture propagation simulation. Fracturing parameters were optimized with a focus on hydraulic fracture characteristics and the estimated ultimate recovery (EUR). The optimization results were as follows: a single-stage length of 50 m, cluster spacing of 15 m, pump injection rate of 10 m3/min, fluid intensity of 25 m3/m, and proppant intensity of 3.5 t/m. The application of these optimized fracturing parameters in field operations resulted in successful fracturing and the achievement of industrial oil flow.