The main functions of electrical insulation oil are cooling and insulating, also eliminating electric arc when switch off.
Because of system leakage, poor sealing, oil in heat-load state for a long time and open storage etc., the water and gas enter into oil which resulting in oil having water gand gas.
There are two states that water and gas exist in oil -- dissolved water and gas (below saturation point) exist in the majority of oil system and oil equipment; free water and gas (above saturation point) exist in some oil.
Under the action of heat and electromagnetic field, transformer oil contacts with oxygen, and then gradually oxidized, generating alcohol, aldehyde, acid and the likes, which finally form and separate out insoluble gelatins and grease sedimentation. These acidic materials would reduce transformer’s insulation performance, so transformer oil must be purified.