The Socceroos slumped to their first loss in their 2014 World Cup campaign against Oman after Amad Al Hosni scored the only goal in the 1-0 win.
Osieck's men were under par throughout, and the former Urawa Reds coach admitted that they could have done better.
"We definitely didn't play the way that we normally play," Osieck told Fox
"We have lost a game which we normally shouldn't lose against an opponent who is inferior to us.
"We made a couple of mistakes, particularly in the first half, where we didn't perform to our potential. That's the outcome, we lost the game."
However, he is upbeat of getting a result in the next group game against Thailand.
Osieck added: "We knew it would be a tough road trip anyway but why should we drop our hats. We are confident, we know what we can do, we know our quality and we have to move on."
Australia, who remain top of Group D with nine points, face Thailand at Bangkok's Suphachalasai Stadium on Tuesday.