* Brazil cut ethanol in gasoline to 20 pct in Oct 2011
* Petrobras selling imported gasoline at a loss
* CEO sees Brazil crude output at 2 mln bpd in November
SAO PAULO, Oct 4 (Reuters) - Increasing the amount of ethanol Brazil blends into gasoline to 25 percent would be the best way for Brazil to cut fuel imports and improve refinery output, the chief executive of Brazil's state-led oil company Petrobras said on Thursday.
Increased ethanol output would also allow Petrobras to maximize output from its refineries by using more crude oil to make diesel, the country's most used vehicle fuel, CEO Maria das Graças Foster told reporters in Sao Paulo.
The reduction of Brazil's ethanol blend to 20 percent from 25 percent in October 2011 has forced Petrobras to increase the import of gasoline to replace the biofuel. Because of price controls on gasoline in Brazil, it has had to sell the imports at a loss.
"The best solution for the gasoline (problem) is ethanol," Foster said. "We'd import less gasoline and produce the gasoline in the amount adequate to our financial needs."
A decision to increase the ethanol blend will depend on the size of Brazil's sugar cane crop and resulting ethanol prices, Foster said. Nearly all Brazilian ethanol is made from sugar cane.
Petrobras, which has private investors but is controlled by the Brazilian government, has not allowed local fuel prices to track international prices, part of the effort to control inflation in Brazil. Analysts estimate that Petrobras fuel prices are as much as 20 percent below world prices.
By tracking "long-term" prices Petrobras would make up for losses when world prices were higher than in Brazil by not lowering domestic prices when world prices fell.
Over the past 10 years, Petrobras has made more profit than loss on this policy, Foster said. The problem now is that it's investment needs are much greater and the current gap between local and world prices is burning cash.
"This gap cannot go on forever," Foster said. "The difficulty is that we invest much more today than before."
In the first half of 2011 Petrobras' refining division lost about 11 billion reais ($5.45 billion) as a result of the pricing policies making it harder to finance a $237 billion five-year expansion program.
The program, the world's largest corporate spending program, demands, on average, about $130 million a day of investments.
Petrobras output of crude oil in Brazil will rise to more than 2 million barrels a day from 1.93 million barrels a day today by November.
If the increase happens it will add about 3 percent to Brazil's total output of 2.54 million barrels a day of oil and natural gas output in Brazil and abroad according to Petrobras production figures for August.