The 40-year-old was cut a frustrated figure as he watched on from the stands after being given a one-match touchline ban for his conduct after the defeat against West Ham United last month.
Wolves fell behind in the 12th minute courtesy of an Erling Haaland penalty, awarded after Rayan Ait-Nouri was deemed to have fouled Josko Gvardiol following a strong coming-together between the pair inside the area.
Haaland then doubled City's advantage with a thumping header before completing his hat-trick on the stroke of half time with another penalty after being brought down by Nelson Semedo.
Wolves' only attempt on target in the entire match was their goal scored seven minutes after the break when Hwang Hee-chan tapped home at the back post after Ederson failed to deal with an inviting cross from substitute Jean-Ricner Bellegarde.
However, Haaland scored his fourth and restored City's three-goal advantage less than a minute later with a powerful left-footed strike, before Julian Alvarez replaced his Norwegian teammate to add a fifth in the closing stages, condemning Wolves to their 16th league defeat of the season.
O'Neil bemoans "terrible" first-half penalty call
Although O'Neil has taken full responsibility for his side's poor performance at the Etihad, he believes that they were once again on the wrong end of refereeing decision, particularly the first penalty that allowed City to open the scoring - no Premier League team have conceded more penalty goals than Wolves (eight) so far this season.
Speaking at his post-match press conference, O'Neil said: "I have to take responsibility for the way the game unfolds. I think we made a lot of unforced errors which gave Manchester City some really good chances. Mistakes against this team can be punished, and they were, they punished us ruthlessly.
"I'm keen to state that the officials did not play a part in the way the game ended. We are fully responsible for the mistakes we made to give City such a lift, but the first penalty I thought was a poor decision.
"I can sit here and speak about how poor my team were and so on in certain moments, but I though the awarding of the first penalty was terrible.
"Gvardiol probably plays as big a part in the contact with Rayan. He has his shot, his leg is still moving through and I think his motion probably creates the contact with Rayan.
"I don't know what Rayan can do in that instance apart from move out of the way and make sure there's no contact created. Gvardiol's swinging leg creates the contact, not Rayan."
"The second one probably is a penalty," O'Neil added. "[Nelson Semedo] made a bit of contact with Haaland, but once it wasn't given, I was really surprised it was overturned (by VAR), because there wasn't much contact from Nelson. You see Haaland go over and high five Nelson as if to say not much in it.
"They reached the right decision, I'm just not comfortable with how. We're really unlucky to concede both, you shouldn't give the first one and the second one I'm happy to give on field because if you see a small contact, Nelse has done enough to put Haaland off."
O'Neil has also suggested that his Wolves team could have been awarded a penalty and questioned why VAR did not intervene to check and incident in the second half when Manuel Akanji appeared to punch the ball on the floor.
"(Should there have been) a potential check on Akanji's handball?", said O'Neil. "Not much made of that - I know the Wolves fans appealed for a penalty, obviously I was far away from it, but from the replays I saw, [Akanji] seemed to have punched the ball when he was on the floor.
"But, as I say, there's so much for me to focus on with my group - our mistakes, sloppy turnovers. You can get away with some mistakes against other teams, but we knew when we came here that we must be as close to our maximum as possible, and we fell short on numerous occasions. We were no way near at the level to test them."
Wolves, who remain 11th in the Premier League table and sit eight points behind the top seven with only two games remaining, will endeavour to return to winning ways when they welcome Crystal Palace to Molineux for their final home fixture of the season.