It is prudent to obtain imaging studies to evaluate the relationship of the cyst with the urethra.
Imaging studies are often done by radiologists, though some urologists do some imaging studies as well. Imaging studies include voiding cystourethrograms, MRIs, ultrasounds, etc. From Penile Lumps:
imaging is often required to confirm the diagnosis.
From Epidermoid cyst of the penis: A case report and review of the literature
The differential diagnosis of cystic structures in the genital region includes an extensive range of conditions. Among the more serious diseases, urethral diverticula and urethrocutaneous fistula are important, but can usually be ruled out by both physical examination and the conditions evident upon voiding. When the diagnosis remains questionable, a voiding cystourethrogram should be obtained.
The above prove nothing, really, because we can't know the precise reason for your urologist wanting to directly examine the urethra (I presume the first cystoscopy was for the same reason?) However, you should be able to ask your doctor any questions you have.
If all they want to do is have a look at the urethra (for whatever reason), it's completely reasonable that they stick to the area around the cyst. If they're looking for a connection between the urethra and the cyst, a VCU would seem to be a more prudent choice.
It is hard to code for a partial procedure (e.g. a look at only part of the urethra), and therefore difficult to charge the patient/their insurance. There is no code for "distal urethroscopy". As crass as it may sound, that might be the reason for the stated desire to do a cystoscopy.
It's your body to defend against what might be an unnecessary procedure. If you don't get a satisfactory answer, a second opinion may be in order.
If a urologist could answer this question, that would be terrific.