You have a need for trust, and him keeping the picture and using it as sexual stimulation is not meeting that need. In order to have your need met, you've made a request: would you be willing to delete the photo? His response to your request was "no."
You could turn it into a demand, if you want, but I wouldn't. Demands only make people resentful, and they never contribute to the positive energy we all want in our relationships. Also, attempting to control people encourages lying and sneaking around.
What should you do now? The first thing you need to answer for yourself is, do you trust him? If yes: then find a way to get over the picture. If no: then consider whether you want to be in a relationship with someone you don't trust.
Keeping the picture doesn't mean he'll do it again, just like deleting the picture doesn't mean he won't. Either he's trustworthy, or he's not. A few digital bits stored on a server in California have nothing to do with whether he can be trusted not to risk your health by having unprotected sex with people you don't know.
I don't need labels to define me. They're sticky and I hate the glue they leave behind.