Step 1 In a sauté pan, heat the olive oil over medium heat. Add the onion and sweat, stirring occasionally, until the onion is softened and translucent, 6 to 8 minutes.
Step 2 Stir in the piquillo peppers, along with the water. Increase the heat to medium high and bring to a gentle simmer.
Step 3 Taste the sauce, adding one-half teaspoon of sugar, or as desired, to sweeten slightly, along with three-fourths teaspoon salt, or to taste.
Step 4Remove the sauce to a blender and purée until smooth; strain the sauce if desired. Return the sauce to the sauté pan and gently simmer for 10 minutes to marry the flavors. Thin if desired with additional water, and taste and adjust the sugar and salt again as needed. This makes about 2 cups sauce.