Colin,
Your photo looks like a sebaceous cyst. My husband had one on his back many years ago. They can be painful to the touch. Sebaceous cysts are filled with sebum (a body excretion) from sebacious follicles, thus when this happens, it can induce the inflamation process. My husbands long suffering finally ended when he had the cyst lanced.You definetly have an inflamation process brewing. Please check it out so you do not have to suffer as long as my husband did.
Hope this info helps you.
HH