Your mistake here was not getting enough of a life lead before retreating.
Realistically speaking you are not going to win a fireball war with Sagat, at least not without a good amount of advantage or some EX.
So, either you make it a goal to stay in close for the entire fight, or you get a 1/3-1/2 life lead and then back off and start dodging Tiger Shots (easier said than done).
You were doing pretty good when you got in, but you kept leaving.
Use more HP AE instead of MP or EX, especially at midrange. You want to use HP a lot, as he’ll be jumping, and ideally you want him to fall onto an HP AE. (Of course, watch your spacing and your timing, as you don’t want him to jump in on you on startup.)
When you do this (preemptive anti-air HP AE) remember to buffer in an LP/MP Whip of Love attempt. If you find that WoL is missing, it’s 'cause you’re doing it too early; but that’s OK, you can use HK LMT with the same timing. Remember to mash on kick for the attack throw. (You might want to just back off and throw a meaty AE instead of going for a setup afterwards.)
EX Lariat has infinite armor until he gets close. It’s also unsafe, at -6 on block- watch his meter and just be wary.
Really mash on that backdash when you can when he gets close- or whatever you have to do. Unless you have the advantage you do not want to be anywhere near Hugo for more than a couple of seconds. (I might suggest against using LMT in blockstrings against Hugo because of this reason.)
Trying to fight back at close range let him jump all over you in Round 2.
If he palms or focus absorbs, that’s OK. Mix up your timing and you’ll hit him. If you feel like you’re not making progress, but he’s staying back, that’s OK. It’s OK to run down the clock; test his patience, keep your cool, and just keep mixing it up. (IIRC he’ll need to be at least midscreen to get something like U2 to work, since Poison’s recovery is too good.)
If he’s using shoulder to dodge, you just need to bait him out. It doesn’t reach fullscreen, so you can throw AE wantonly there; once you get into range, though, watch his meter and start doing squats and other fakes.
MP and EX shoulder are at the least cr. LK xx LP WoL punishable on block (-6 to be precise).
Shoulder doesn’t armor break, and Focus Attack has a similar animation to AE, so if you think they’ll fall for it, you can start peppering that in along with your fakes too.
Try to learn delayed crouch tech. Stand tech is a bit too vulnerable. Against divekick characters, you can try to use three button tech (down-back+LP+LK+HP) but I haven’t personally been able to apply this technique yet.
Try not to panic U1 at the end of matches. You can still survive with a pixel; don’t throw it away. Unless you have a really good read, just sit, wait, and keep those eyes open.
I’d say you are a good player. You should work on your composure and really think about how to “play lame” as much as possible.