Warm olive oil in a medium saucepan over medium heat.
Soften onion in the oil, stirring, until translucent, about 3 minutes.
Stir in garlic and cook until fragrant, 30 seconds.
Toast tomato paste in the pan, stirring, until darkened slightly, 1 minute.
Pour in crushed tomatoes and water, then mix in sugar, oregano, basil, salt, pepper, and red pepper flakes.
Bring to a gentle simmer. Cook uncovered, stirring occasionally, until thickened, 12–15 minutes.
Finish with balsamic vinegar, then taste and adjust salt or herbs as needed.
Cool slightly before using on pizza, or chill for later.