water=snow=condense in air
A. Water gets in together with refill oil
B. Water get sucked in through breather cap/fill cap
C. Water get sucked in through a leaking suction hose
D. Condense water in air
A. Store your spare oil under roof. Whole barrels and 1/4 barrels stored outside, are sucking water in through cap, just by the pressure difference from temperature changes....put a piece of 2x4 under the barrel, so the cap is the high point....When refilling oil, use a clean funnel with strainer
B. When double action cylinders extends, level in tank lowers, and when cylinders retract, level raises (the volume of the piston rod). Accordingly air goes in and out of tank....make sure the breathing hole/cap is raised 1-2 inches above the top of the tank. Also keep top of tank as clean as possible. Bark and debris can hold moist and water, that easily can get into tank.
C. A leak on suction hose will usually not show as an external oil leak. But when pump "sucks" oil from tank, pressure in suction hose will become lower than the atmospheric air pressure, and the air pressure will push air any present water inside suction hose. Make sure no water can pour/drip down to suction hose from above. Operation in rain?? well you decide....
D. If system is running warm/hot and ambient temperature is low, condense water will stick on walls inside tank, and accumulate on bottom of tank....sooner or later it will be sucked up by pump and create "milk" or emulsion. Have a drain valve (I recommend a 1/2" ball valve) in a corner, opposite side of suction line, at the bottom of tank....Every once in a while, let splitter stay parked with this valve as a LOW point. Drain a 1-5oz sample collected into a glass jar, next day before starting up....let sample sit (leaning the jar) for a day and check if oil is milky or if there is any water on the bottom. This will also help you determine if "milk" is air or water......
For water emulsion also try this
Visual Crackle Test