Well, let's go back a step or two...

What were the Hunt brothers trading?

Were they buying (I don't think they were selling) futures contracts or futures options.

These two vehicles clearly work differently.  I think (but am not 100% sure)  that they were buying futures contracts - or "futures" for short.

To buy, you have to have the margin % to cover a portion of the cost of doing the eventual buying of the product.  Once you buy the future, you have "locked in" your eventual future purchase price.  You have not paid in full yet, though.

The margin essentially covers only a portion of that eventual payment.

Now, as you say, as the contract moves against or for you and is "marked to market" daily.  Does that not mean that if your contract moves up in value, that additional cash is deposited in your futures account and you (effectively) have more margin % automatically available to you?  Now, as I recall, the Hunt brothers used that additional cash in the futures accounts to go out and buy more futures.  That would then deplete the margin again.

I think I understand why the margin percentage was increased...

The clearing house companies were running out of funds to cover the losses of some of the (probably bankrupt) sellers of the contracts if (or when) they could not deliver the goods.  One of the functions of commodities margins is to provide a pool of funds to the clearing houses to help them cover any losses that they are required to (in the event of a delivery default).

I can see how this mechanism would automatically work against *any* person trying to manufacture a big enough "squeeze" on the market - like the Hunt brothers were trying to do.

Is there any equivalent (self-limiting type) mechanism that is (or should be) triggered by shorts (or futures sellers) trying to manufacture a "virtual oversupply" of a product?  Does there need to be?

I don't know what the opposite of a "squeeze" is called, I just called it a "virtual oversupply".  However, it just stands to reason that there must the equivalent of a "squeeze" in the opposite direction. 

Anybody with a large enough supply of cash (relative to the size of the market) can start a monentum run in either direction (usually called market manipulation), but the real rub comes in the "exit strategy".  Even though the strategy might seem to be working at any given point in time, unless the position can be "unwound" completely at a profit, the scheme will eventually have failed.