But while defeat to their most bitter rivals was particularly painful, Davies remained proud of the efforts of his players.
"This was a game we felt we could have won and we are frustrated it didn't come our way," said Davies, after a 73rd-minute drop goal from Dan Biggar gave the visitors victory.
"But I was really proud of my players. They have shown how far they have progressed and we can take a lot from that going into Europe.
"This group is going to get stronger and stronger and we are definitely going in the right direction."
The Scarlets have now won three of their first five Magners League fixtures as they look to improve upon a disappointing campaign last time out.
Davies saw his side finish next to bottom in last season's standings but, despite Saturday's derby defeat, the Scarlets are currently sitting in fifth place this time around.
A fourth-straight win would have seen the Scarlets jump to the top of the table but a failure to open up a bigger lead than the three-point advantage they took into half-time ultimately cost them dear.
"We should have put more points on in the first half and we had some opportunities that we didn't finish and that's disappointing," added Davies.
"The intensity of the game was such that there were always going to be a few key moments and incidents, but the Ospreys really picked up their game in the end.
"At times we were a little inaccurate and the Ospreys countered well.
"There is a lot of spirit being shown in this side and they held and matched a top-end team that has quality throughout its ranks.
"Now we have to come back next week and focus on a big European opening game for us on Saturday."
The Scarlets face French giants Perpignan in their European opener in Llanelli this weekend, before travelling to English Champions Leicester Tigers in Round 2.
They return to Magners League action on Friday, October 22 with a third Welsh derby at the Cardiff City Stadium against the Blues.
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