Davies praised the effort his young side in a red-hot derby atmosphere.
However, he could not hide his disappointment as Blues now look to the next derby clash - with Dragons on Boxing Day - to bounce back in the RaboDirect PRO12.
Davies said: "It was all about fine margins in that game. We were quite exciting at times and the performance was good at times, but we were also frustrating and a few errors cost us.
"We didn't get the momentum at times, but the overall effort and performance of the players was good. We tried to play a lot of rugby, as did the Ospreys, and it was an open game.
"But we are frustrated because we put a lot of effort in and didn't get the result we wanted.
"The wind was tricky and it was tough for both kickers. I thought they both kicked well and Leigh (Halfpenny) is our match winner, he has won us games before and will again.
"In the second half we got good field position and started to keep the ball well and looked threatening.
"We had a couple of charge down decisions towards the end of the game when we could have played on.
"We were creating opportunities by keeping the ball and some really good defensive pressure around the ruck too.
"It was a good atmosphere, the crowd was good and we are bitterly disappointed we didn't get the result for them.
"We want to win every game and give the supporters something to shout about. We have got to keep working hard, if not harder, to get the results we want as we move forward.