Penetration doesn't really do anything for me. I can have an orgasm just fine without penetration like on the towel. It's just the grinding onto the front of my pelvis.
I'm a female, NOT a male.
Actually, since you're able to orgasm, I would say that you're really not doing anything "wrong." It's just that not everyone climaxes the same way. The position that you described, female on top... is very effective in achieving an orgasm as it allows for deep penetration. And, I have found that the male entering from behind position, commonly called, "doggy style," can be equally, if not more, arousing.
Now, if grinding against that towel works for you... continue to use it. I suspect that it's likely the coarseness of the towel rubbing against the clitoris that's stimulating. As for masturbation, might I recommend experimentation with a vibrator?
Are you able to get erections?
Have you tried then to stroke those erections?
Is there any sensation at all? Are you able to insert into your partner?
Also when you grind your pelvis, it is also making your penis contact with other things. Hopefully you aren't putting any pressure on your penis itself in order to achieve orgasm as that would not be good for the penis at all. In fact could mess it up if you are doing it on a hard surface.