How to fix greyed out 'Erase' option for disk i...

I'm having a bit of an issue erasing my disk image in recovery mode.

When I am logged in to my account and go to my Disk Utility, it only shows my Internal SSD drive. When I go into recovery mode, Disk Utility shows an External disk image. I wanted to erase this disk image, however the 'Erase' option is greyed out, so it doesn't give me the option.

Do I need to change permissions somewhere to do this?