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Image Removed(oilprice.com) Oil briefly dropped below $40 per barrel this week but rebounded following the surprise drawdown in gasoline inventories, a robust decline of 3.3 million barrels. Oil traders were more than happy with that result, ignoring the 1.4 million barrel build in crude oil stocks. As a result, oil traded up 3 percent on Wednesday and posted an additional 2.5 percent gain on Thursday. Some of those gains could have been the result of speculators closing out short positions and pocketing profits, however. “With WTI testing $40 lately and without follow through selling, short positions are likely booking profits and we could see range bound prices after this,” Chris Jarvis, analyst at Caprock Risk Management, told Reuters .

Bear market to be brief. Citigroup, Bank of America Merrill Lynch, Wood Mackenzie, and other investment banks predicted that the bear market will be over quickly, citing a dearth of oil supply that is profitable below $40 per barrel. Some analysts are even concerned that today’s cutbacks are too severe, setting up the market for a supply crunch down the line. “We think what’s happening in the market is very seasonal. Supply is actually going down pretty quickly, demand is moving higher, and this is going to move the market into a deficit,” said Francisco Blanch, the head of global commodities and derivatives research at Bank of America Merrill Lynch. He says the supply drop off will lead to a “multi-quarter deficit,” which means oil prices will move “quite a lot higher.” But in the short-term, oil traders are not optimistic. On top of the massive volumes of oil and gasoline sitting in storage, the consistent gains in the rig count in recent weeks is giving the market some reason to worry.