Lewis Hamilton managed more running on Wednesday after a difficult Tuesday at testing
Max Verstappen came within 0.026 seconds of Ferrari's Kimi Raikkonen although both of them were over a second behind Valtteri Bottas in the Mercedes.
But Lewis Hamilton still believes both teams will prove worthy opponents when the F1 circus heads to Melbourne for the Australian Grand Prix on March 26.
"When we left here last week it looked like Ferrari was our closest rivals, today Red Bull look quick," Hamilton said.
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"It's going to be interesting over the next few days and when we arrive in Australia.
"The field will be close, that's for sure."
Hamilton has a new team-mate after Bottas made the switch from Williams to replace retired world champion Nico Rosberg.
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Lewis Hamilton is favourite to win his fourth world title in 2017
And the Finn also believes Red Bull should not be forgotten about even though their pace in week one was not particularly impressive.
"I think Ferrari are looking very good – they seem to be consistent and fast," said Bottas.
"We shouldn't underestimate them or Red Bull.
Max Verstappen impressed for Red Bull on the second day of week two of testing
"We'll need to keep working hard to be in the best shape possible for Melbourne."
The two Mercedes drivers have split the running on each day of testing so far although Bottas appears to have had the better luck.
Yesterday, Hamilton struggled with floor damage and a balance issue that limited him to less than 50 laps.
But the British driver was able to get round 79 times on Wednesday and believes testing has been largely successful so far.
"We're on target in terms of the laps that we've done and the mileage, but we're always searching for more performance," added Hamilton.
"I think the car will start to come together this week.
"There's still bits coming in and we're improving all the time, but I'm confident by Melbourne we'll have the best car we can.
"We'll have all the upgrade parts, an understanding of the set-up and where we need to put the car to make it fastest."