diff --git a/common/lib/xmodule/xmodule/video_module/video_module.py b/common/lib/xmodule/xmodule/video_module/video_module.py
index f8271473e2..f93f54f50e 100644
--- a/common/lib/xmodule/xmodule/video_module/video_module.py
+++ b/common/lib/xmodule/xmodule/video_module/video_module.py
@@ -722,7 +722,6 @@ class VideoDescriptor(VideoFields, VideoTranscriptsMixin, VideoStudioViewHandler
         })
 
         source_url = self.create_youtube_url(youtube_id_1_0['value'])
-
         # First try a lookup in VAL. If any video encoding is found given the video id then
         # override the source_url with it.
         if self.edx_video_id and edxval_api:
@@ -734,15 +733,18 @@ class VideoDescriptor(VideoFields, VideoTranscriptsMixin, VideoStudioViewHandler
             # Get video encodings for val profiles.
             val_video_encodings = edxval_api.get_urls_for_profiles(self.edx_video_id, val_profiles)
 
-            # If multiple encodings are there in val, the priority will be: youtube > hls > mp4 and webm.
+            # VAL's youtube source has greater priority over external youtube source.
             if val_video_encodings.get('youtube'):
                 source_url = self.create_youtube_url(val_video_encodings['youtube'])
-            elif val_video_encodings.get('hls'):
-                source_url = val_video_encodings['hls']
-            elif val_video_encodings.get('desktop_mp4'):
-                source_url = val_video_encodings['desktop_mp4']
-            elif val_video_encodings.get('desktop_webm'):
-                source_url = val_video_encodings['desktop_webm']
+
+            # If no youtube source is provided externally or in VAl, update source_url in order: hls > mp4 and webm
+            if not source_url:
+                if val_video_encodings.get('hls'):
+                    source_url = val_video_encodings['hls']
+                elif val_video_encodings.get('desktop_mp4'):
+                    source_url = val_video_encodings['desktop_mp4']
+                elif val_video_encodings.get('desktop_webm'):
+                    source_url = val_video_encodings['desktop_webm']
 
         # Only add if html5 sources do not already contain source_url.
         if source_url and source_url not in video_url['value']:
diff --git a/lms/djangoapps/courseware/tests/test_video_mongo.py b/lms/djangoapps/courseware/tests/test_video_mongo.py
index 6f13abc44f..01fed42433 100644
--- a/lms/djangoapps/courseware/tests/test_video_mongo.py
+++ b/lms/djangoapps/courseware/tests/test_video_mongo.py
@@ -1085,46 +1085,28 @@ class TestVideoDescriptorInitialization(BaseTestXmodule):
     @ddt.data(
         (
             {
-                'desktop_webm': 'https://webm.com/dw.webm',
-                'hls': 'https://hls.com/hls.m3u8',
                 'youtube': 'v0TFmdO4ZP0',
-                'desktop_mp4': 'https://mp4.com/dm.mp4'
+                'hls': 'https://hls.com/hls.m3u8',
+                'desktop_mp4': 'https://mp4.com/dm.mp4',
+                'desktop_webm': 'https://webm.com/dw.webm',
             },
             ['https://www.youtube.com/watch?v=v0TFmdO4ZP0']
         ),
         (
             {
-                'desktop_webm': 'https://webm.com/dw.webm',
+                'youtube': None,
                 'hls': 'https://hls.com/hls.m3u8',
-                'youtube': None,
-                'desktop_mp4': 'https://mp4.com/dm.mp4'
-            },
-            ['https://hls.com/hls.m3u8']
-        ),
-        (
-            {
+                'desktop_mp4': 'https://mp4.com/dm.mp4',
                 'desktop_webm': 'https://webm.com/dw.webm',
-                'hls': None,
-                'youtube': None,
-                'desktop_mp4': 'https://mp4.com/dm.mp4'
             },
-            ['https://mp4.com/dm.mp4']
+            ['https://www.youtube.com/watch?v=3_yD_cEKoCk']
         ),
         (
             {
-                'desktop_webm': 'https://webm.com/dw.webm',
-                'hls': None,
                 'youtube': None,
-                'desktop_mp4': None
-            },
-            ['https://webm.com/dw.webm']
-        ),
-        (
-            {
+                'hls': None,
+                'desktop_mp4': None,
                 'desktop_webm': None,
-                'hls': None,
-                'youtube': None,
-                'desktop_mp4': None
             },
             ['https://www.youtube.com/watch?v=3_yD_cEKoCk']
         ),
@@ -1135,6 +1117,12 @@ class TestVideoDescriptorInitialization(BaseTestXmodule):
         """
         Tests that the val encodings correctly override the video url when the edx video id is set and
         one or more encodings are present.
+        Accepted order of source priority is:
+            VAL's youtube source > external youtube source > hls > mp4 > webm.
+
+        Note that `https://www.youtube.com/watch?v=3_yD_cEKoCk` is the default youtube source with which
+        a video component is initialized. Current implementation considers this youtube source as a valid
+        external youtube source.
         """
         with patch('xmodule.video_module.video_module.edxval_api.get_urls_for_profiles') as get_urls_for_profiles:
             get_urls_for_profiles.return_value = val_video_encodings
@@ -1142,7 +1130,44 @@ class TestVideoDescriptorInitialization(BaseTestXmodule):
                 data='<video display_name="Video" download_video="true" edx_video_id="12345-67890">[]</video>'
             )
             context = self.item_descriptor.get_context()
-            self.assertEqual(context['transcripts_basic_tab_metadata']['video_url']['value'], video_url)
+        self.assertEqual(context['transcripts_basic_tab_metadata']['video_url']['value'], video_url)
+
+    @ddt.data(
+        (
+            {
+                'youtube': None,
+                'hls': 'https://hls.com/hls.m3u8',
+                'desktop_mp4': 'https://mp4.com/dm.mp4',
+                'desktop_webm': 'https://webm.com/dw.webm',
+            },
+            ['https://hls.com/hls.m3u8']
+        ),
+        (
+            {
+                'youtube': 'v0TFmdO4ZP0',
+                'hls': 'https://hls.com/hls.m3u8',
+                'desktop_mp4': None,
+                'desktop_webm': 'https://webm.com/dw.webm',
+            },
+            ['https://www.youtube.com/watch?v=v0TFmdO4ZP0']
+        ),
+    )
+    @ddt.unpack
+    @patch('xmodule.video_module.video_module.HLSPlaybackEnabledFlag.feature_enabled', Mock(return_value=True))
+    def test_val_encoding_in_context_without_external_youtube_source(self, val_video_encodings, video_url):
+        """
+        Tests that the val encodings correctly override the video url when the edx video id is set and
+        one or more encodings are present. In this scenerio no external youtube source is provided.
+        Accepted order of source priority is:
+            VAL's youtube source > external youtube source > hls > mp4 > webm.
+        """
+        with patch('xmodule.video_module.video_module.edxval_api.get_urls_for_profiles') as get_urls_for_profiles:
+            get_urls_for_profiles.return_value = val_video_encodings
+            self.initialize_module(
+                data='<video display_name="Video" youtube_id_1_0="" download_video="true" edx_video_id="12345-67890">[]</video>'
+            )
+            context = self.item_descriptor.get_context()
+        self.assertEqual(context['transcripts_basic_tab_metadata']['video_url']['value'], video_url)
 
 
 @attr(shard=1)