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By Sarah Kent and Georgi Kantchev 

LONDON--Europe's commodities traders are warning that new regulations set to be released within days could roil markets and push up costs for a range of essentials from crude oil to chocolate.

A final draft of expanded rules governing the European Union's oversight of financial markets is expected to extend its authority over firms that focus on trading in oil, farm products, industrial metals like copper and a host of other commodities. It would add a new layer of scrutiny for an industry that has historically operated with limited oversight.

These companies--like BP PLC, Glencore PLC and Vitol Group--buy and sell huge volumes of oil and industrial metals on a daily basis, hedging their stocks of raw materials with sizable positions in financial markets. Though it is difficult to quantify just how big they are, Vitol stunned market watchers in 2008 when regulators discovered that an internal hedge fund represented 11% of outstanding oil trades on the New York Mercantile Exchange.

The EU's regulations are intended to reduce the risk of a repeat of the financial crisis and prevent market abuse such as the $2.6 billion loss in the copper market attributed to a trader at Japan's Sumitomo in the 1990s.

The EU's current rules mostly apply to financial institutions like banks and investment funds. Right now, big traders like Glencore, Vitol and Mercuria Group don't have the same requirements as banks to set aside money to backstop their trading and limit the number of contracts they trade in a given time.

The new rules are expected to require more of the traders, though how much remains unclear.

Big commodities players from Royal Dutch Shell PLC to Mars Chocolate to Trafigura Beheer BV have objected to the idea of being treated essentially like banks, lobbying Brussels to exempt them from some of the rules.

They say they shouldn't be regulated as closely because a large part of their business in financial markets is intended to lower their risk when trading raw materials.

New rules, they argue, would make it harder to trade and could cause some to leave the market, making it more expensive for airlines, utilities and others to manage their exposure to commodities prices--costs that ultimately would be passed on to consumers.

"We are utterly in favor of regulation, but we don't want bad or over-regulated markets that make liquidity dry up," said Graham Francis, managing director at interdealer broker ICAP Energy. "If a bunch of liquidity leaves, then what? Things will be more expensive for consumers...and you've probably not improved market stability or functionality."

The European Securities and Markets Authority is expected to issue technical details about how the regulations--known as the Markets in Financial Instruments Directive, or MIFID II--will be applied within days. The European Commission, the EU's executive branch, must then approve or reject them.

Reemt Seibel, spokesman for the securities and markets authority, said the agency appreciates the concerns raised by businesses and would consider them.

"It is not the aim of any regulation to kill business," he said.

Traders are especially interested in what will be captured by the new rules, the volumes they will be able to trade and whether they will leave big traders subject to holding capital in a similar way to banks.

"We are not a bank," said Patrick Pouyanné, chief executive of French oil giant Total SA, which has a large trading arm. He added in a Wednesday interview: "I believe that we need some regulations, but up to a point that leaves markets to work."

Shell has warned that it could have to commit up to $30 billion in regulatory capital if the rules are enforced as currently proposed. That could prompt the company to restructure or move part of its trading arm to a country with less onerous rules.

The rules are being proposed at a difficult moment for one of the world's biggest traders, Glencore. The company has lost more than 60% of its stock value this year as investors worry about its debt levels and credit ratings amid a commodity price slump with no end in sight.

Glencore and others would have at least 15 months to prepare and restructure their businesses before the rules went into effect. The company remains relaxed about the new rules, one person familiar with its thinking said. If needed, it could simply move its trading operations to other parts of the world.

Many of Wall Street's biggest firms have themselves dramatically scaled back their commodities trading or exited the business altogether because of tough regulations already in place.

Some observers said traders are being hyperbolic and the regulations are necessary to ensure the proper functioning of financial markets.

The biggest American oil companies such as Exxon Mobil Corp. and Chevron Corp. haven't been as vocal in opposition to the new rules. They focus their trading around selling the crude they produce. Major European oil companies have large trading arms that buy and sell additional volumes they didn't produce.

"This is the minimum set of requirements that is indispensable," said Diego Valiante, head of the financial markets and institutions unit at the Centre for European Policy Studies and an adviser to ESMA.

According to Mr. Valiante's calculations, the amount of capital even the largest trading houses would need to hold would only be in the order of hundreds of millions of dollars--a large, but affordable figure.

"I disagree that it will create a big market disruption," he said.

The EU's latest regulatory push was conceived in the wake of the financial crisis, amid heightened concerns over systemic risks in the market and the role speculators play in pushing up prices for vital raw materials like oil and agricultural commodities.

The U.S. is also in the midst of its own regulatory crackdown, launched by the 2010 Dodd-Frank law, but many view the proposed European regime as likely to be more stringent.

In a sign of the impact the rules could have on financial markets, Germany, France and the U.K. in August expressed concerns over some of the details and called on regulators to modify some aspects.

Write to Sarah Kent at sarah.kent@wsj.com and Georgi Kantchev at georgi.kantchev@wsj.com

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(END) Dow Jones Newswires

September 24, 2015 14:45 ET (18:45 GMT)