Oil prices hovered near their highest levels in nearly three months on Friday, buoyed by a sharp decline in U.S. crude stockpiles and optimism about China's economic recovery. However, lingering uncertainties about global supply and geopolitical risks tempered market enthusiasm.

Brent crude futures, the global benchmark, traded at $75.81 a barrel, down 0.2% on the day but still up 2.7% for the week. U.S. West Texas Intermediate (WTI) crude dipped slightly to $73.06 a barrel but remained on track for a robust 3.5% weekly gain. The rally followed a four-day surge that pushed Brent above key technical levels and marked its highest intraday price since mid-October.

The market was buoyed by a significant drawdown in U.S. crude inventories, signaling strong domestic demand. "Oil prices are a few dollars undervalued right now," said Daan Struyven, head of commodities research at Goldman Sachs, during a Bloomberg television interview. "Global energy demand will continue to rise very significantly."

Adding to the bullish sentiment, Middle Eastern crude prices strengthened, with regional barrels trading at a rare premium to Brent. This was driven by robust refinery demand and disruptions in flows from Russia and Iran due to ongoing sanctions.

The optimism was further supported by signs of economic stimulus from China, the world's largest crude importer. On Friday, Beijing announced plans to issue ultralong-term special Treasury bonds aimed at large-scale equipment renewals and boosting consumer goods trade-ins. The announcement followed remarks by Chinese President Xi Jinping earlier in the week, which traders interpreted as a commitment to revitalize the nation's economy after a challenging 2024.

"Despite Brent's trading liquidity remaining thin during the first trading days of 2025, the initial trend appears supportive of higher prices," said Ahmad Assiri, a research strategist at Pepperstone, in a note.

Still, concerns over China's economic stability persisted. The country's lackluster industrial activity in late 2024 and subdued oil imports have raised questions about sustained demand growth. Analysts remain cautious about whether the announced measures will translate into meaningful economic acceleration.

Geopolitical risks added another layer of complexity to the oil markets. The upcoming inauguration of Donald Trump on January 20 has heightened uncertainties, with potential shifts in U.S. foreign policy impacting global trade dynamics. "His policy pledges could collide with ground realities, particularly concerning Ukraine and ongoing Middle East tensions - potential catalysts for the re-emergence of a risk premium in Brent prices," Assiri noted.

Beyond geopolitical risks, the outlook for 2025 remains clouded by concerns about oversupply. Analysts are closely watching the potential revival of idled OPEC+ production and the group's capacity to manage output effectively in response to fluctuating demand. Additionally, the possibility of weaker global economic growth poses a challenge to oil markets seeking sustained recovery.

On the supply side, natural gas and other energy products saw mixed trading. February natural gas futures fell 3.1% to $3.044 per million British thermal units, reflecting tepid demand in warmer-than-expected winter conditions. Gasoline prices were flat at $2.052 a gallon, while heating oil dipped 0.6% to $2.34 a gallon.