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I am flavoring 65% ABV spirits with orange peel. After getting the flavor to where I liked it, I diluted down to 45% ABV. The solution became cloudy around 50-55%. I suspect this may be due to the oils from the orange peel. Any thoughts?

Yes, those precious oils. If you want a clear spirit just dilute with higher abv neutral until no cloudiness occur. It also means less fruity character. I keep my citrus-liqueurs at around 50% abv, they will cloud the cocktail but at least transparent in the bottle.

Could well be. It's the citrus oils that make limoncello cloudy once it's diluted down to drinking strength.

How long are you leaving the orange peel in for?

I macerate three medium size orange's peel only for a day at room temperature, in a liter of 70% neutral spirit, then I distill it without the peels and with the same amount of water. No heads, hearts end at 30%.

Thanks for all the input. I think I can live with the cloudiness as the flavor is just about perfect. I haven't tried mixing it with anything -- have been sipping it neat as I would any fine brandy. I shot for 45% so that the alcohol content wouldn't be too strong or overwhelming. Maybe next time I'll try stopping at 50% or so. The spirits were distilled from an orange juice based "mash" so there was a hint of flavor to begin with, although I didn't collect too much of the tails on this run. As far as the orange peel, I took one orange, cut the peel off, then "filleted" the peels so there was only the rind or orange part left. I then soaked the large pieces for about a day and a half. I stopped when the flavor was just distinct but not overwhelming. My friends want more than I have to give away. This fall I'll use our satsuma fruit -- we have way more than we can eat or give away -- as the base and flavoring.