These are transformers, not generators.
There are no moving parts, and the oil is there to convect the heat away - like in car engines.

If the insulation breaks down then this short circuit will cause a lot of heat - maybe the screech was oil vapour venting off, before the oil eventually caught alight.

2 questions:
why wasnt the deterioration of the insulation picked up by routine maintenance?

why didn't the safety systems shut the transformer down when it detected that the power out had dropped/oil temperature risen?

After all, firemen's' lives were put at risk clearing up this mess.